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A long time ago in a galaxy far, far away… an old colonel once said to me: “fail to plan ---plan to fail.”
So here I am, trying to plan for nightmare trading scenarios so that I have a contingency plan in place when things go drastically wrong. I would greatly appreciate other traders chiming in with nightmare scenarios we as traders should be prepared to handle. The few I’ve come up with are:
- Scenario: Unanticipated Extreme Volatility - Countermeasure: Always use stop loss –even if it is a “catastrophic” stop loss… it’ll likely be less catastrophic than not using one.
- Scenario: Stop Jumps
I remember reading a thread a long time ago on here, where cjbooth said something about a stop jump really doing damage to one of his accounts. I’m not sure what a stop jump is, but I assume in essence, its something like: the stop loss order resides on the client trading software, however, if price moves faster at the exchange than your software/network can react then your order to get out of the position does not get executed/filled. Do I have this correct?
I’m not sure how one protects themselves against this scenario, so I’d be interested in what folks have to say about stop jumps. The only thing I can think of at the moment as a countermeasure, are using server-side orders and not client side orders. Essentially, I know that Sierra Chart has a server-side order service, with the value proposition being that the order is not sitting on your machine --susceptible to network lag/power/internet outages… and thus stop jumps, if those are indeed a function of such factors. But I just conjecture. I’d be interested in peoples thoughts on “stop jumps”, if they are a real threat and what countermeasure to use --as well as thoughts / pros-cons of using server side ordering.
- Scenario: Power / Internet Outages
This is fairly self-explanatory, but if anyone has additional thoughts on their risk mitigation strategies, they are most welcome. - Countermeasures: Ensure adequate surge protection and battery backups are in place to run the trading machine, monitors, internet modem, and wireless router. This, theoretically in the event of a power failure, should keep the appliances online long enough to close any open positions in an emergency.
I had given this a lot of thought. I’ve been used to windows for decades, and I’ve gotten used to its instability and “daily reboot procedure” to ensure things mostly-hopefully work right. Blue screens and bad drivers and ill written software, however, is something I wont tolerate when my money is on the line. It was with that thought, that I bought my first Mac. They are supposedly known for being more stable than windows, so I figured it was time to find out for myself. The rub, was finding a professional trading platform that ran on Mac. In my research, I found that Sierra Chart is capable of running on Mac when using either a CrossOver “Bottle” or on Parallels. I first tried CrossOver, but there are a few limitations, and thus next I tried Parallels. So far, I’ve had good results. In the six months with this setup, I’ve had zero stability issues with my Mac running Parallels with Windows10, and Sierra on that: it’s been solid. To contrast that, my HP machine, barely two years old running Windows10, blue screens randomly at least once a week.
Statistically though, beyond the chance of some software failure, there is also the remote possibility of a hardware failure. And thus, say if the hard drive crashes, the box is down. In that scenario, I suspect the only countermeasure is my broker on speed dial. - Countermeasures: Mac running Parallels running Win10 running Sierra. Broker on speed dial.
So those are just a few nightmares that occurred to me. I very much appreciate thoughts and additional mitigation strategies on these and other scenarios I may not have even thought of, which sorta goes back to "you don't know what you don't know." Thus, here I am trying to plan.
Good list. I'll just make a comment or two on what I thought while reading it.
1. Windows blue screen: I remember, from the past, what the blue screen of death was. I haven't seen it for years now. This old HP laptop I am typing this on -- around 10 years old, give or take -- is running literally 24/7. I just shut off the screens at night but it runs all the time. It also has my trading platform (Sierra Chart) running all the time, and there are scheduled maintenance tasks that run at night sometimes. It has had exactly zero blue screen events in years, and has been running uninterrupted for years. It runs the current version of Windows 10 and I take all the updates when they come in.
When I was more active in software development and had clients to support, we had them keep all their office PC's running all the time, just shutting off the monitors when they left work, so we could remotely access them at night when we needed to. Machines going down under those conditions were very rare, and I'm talking about more than 10 or 12 years ago, and many versions of Windows ago.
So there is something unusual with your PC having a blue screen every week. It would be unusual, based on my experience, to have one every year; at least it hasn't happened to me in many years and many versions of Windows. I don't know what is different with your machine or your hardware/software, but your Windows crashes should not be shrugged off as "that's just Windows." Windows used to be more like that, and it used to be a good idea to just manually reboot frequently also, but I haven't seen those days in a long time.
No idea what's going on, but something is. Perhaps you have a driver issue, where some driver software is incompatible with some hardware. Perhaps you have some very buggy software. But you have something, and completely aside from the Mac/Windows question, you can get this tracked down and fixed. Your problem with your Windows PC is not due to Windows as such, and you don't have to just put up with it. Really, you don't.
2. "Stop jumping" (or whatever.) I have no idea what was referred to by this, but basically you should know that having a stop does not guarantee that you will get out when you expect, or at all. Normally you will, because normally when you have a sell order there will be someone with a buy that can be matched to it. Not necessarily in unusual times, although they would have to be pretty unusual. There have been a few events over the years that have been called "flash crashes," but I was caught in the first one that I recall of that name, many years ago. There was simply a total absence of any order to buy, so you couldn't get out no matter what you tried to do. I tried to close manually, no luck, no buyers, and I tried to put on a trade going the other way, no luck. Nobody gave a damn what anyone wanted to do, there were no participants in the market at all during the plunge, period. A stop would have done you no good at all.
So that's a realistic limitatin on stop orders. In a total catastrophe, they won't do what you want, and nothing else will either. (I was trading options at the time and could only lose 100% of the position, which I did. With futures there is no limitation on the downside risk.) Sorry.
Where are the stops? Your stops are not on your local computer. Like any order, they get passed on to the order processing firm (which might be Righmic or CQG or SC's new thing or TT or others) and they pass it on to the exchange. That is, assuming the order is a standard exchange one. Some brokers and some order services offer special order types that they manage from their servers (which is less iffy than being on your PC) and whatever gets to the exchange, and when, depends on them.
Also, if you have set what are called OCO orders that pair a buy and a sell, cancelling one if the other is hit, as when you have a stop and a target set by an "ATM" feature of your trading platform, the cancelling has to be handled either on your PC or by the order processing guys, because it isn't a native CME order. But in that case, the actual original orders will usually have been passed on to the exchange, but managing them (for instance, cancelling your stop if your target is hit), will be handled either by your trading software on your PC or by someone else along the chain. When it's not on your PC, then you have "server side OCO," and yes, that's much better to have. You may have both a sell below your trade (your stop) and a sell above it (your limit target) in the exchange servers at the same time, so your stop will be in. Whether one order cancels the other requires some action either on your computer or by the order processing firm. Contact your broker or whoever handles the orders (Rithmic, CQG, etc.) if you're not sure.
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Probably someone else can jump in and offer more thoughts and comments, and/or correct mine .
I don't think that you can totally nail down every risk, but it is a good idea to nail the ones you can.
Good luck.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Thanks for all the great info, you are a wealth of knowledge!
Sounds like you've had a bit more luck with windows over the years than I. I agree, it's probably some driver issue, but I just haven't had the time and energy to dig in with troubleshooting to figure out what's going on. I just happened to get frustrated enough, to say heck with it and buy a mac. lol
That was an interesting point about stops, that when things go haywire, the market just breaks down and they do ya no good... this could put one in a real bad spot... especially with futures. Definitely food for thought, and this is what this thread is about. Protecting oneself to the best possible degree. Some things you just might not be able to do anything about however, but, there might be one veteran trader out there on bmt with a great tip that can make all the difference down the road, which sorta goes back to not knowing what you don't know and trying to figure out your blind spots.
I'm not sure how to quote yet, but i pulled the following from another thread I was reading.
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... another thing to keep in mind is: Trailing Stops are managed by the software, they do not reside on the server, even if you have Global Settings > General Trade Settings > Use Server-Side OCO Orders and Use Server-Side Bracket Orders checked (which you should check, anyway).
That means if you have a power outage, or your system crashes, or you lose Internet access, for a lengthy period of time, your position will not have a resting Stop in place on the server to protect you. Therefore, make certain you have an alternate way to watch whatever you are trading, and make sure you can login to SC's Web-Based Trading Panel on your smart device so you can flatten your position, if necessary.
=============
So, that is another idea... be able to manage your position from your phone/tablet. Essentially, having the ability with an app or browser to access a web based trading panel from your phone using your phone carriers data plan, should be able to provide the ability to get out of a position should a catastrophic situation occur. Maybe I'm old... and have old thinking.... lol "have your broker on speed dial."
But yes, I was experimenting with sierra charts OCO and attached orders as well as using their step-trailing stop functionality, and thought that all this was managed client side. And it being client side in my opinion, made it more susceptible to one of these emergency conditions. That's why I've been leaning toward using server side order service. Have you used their server side order service? Or are you using CQG for data as well as order routing?
In addition to your plan that I call risk management, I have on my cell phone the phone number of my broker trading desk and my broker app.
If I suspect a broker issue (even if not that usual, that happened once to me in the past), like non execution of orders = I would call the Desk
In case of an Internet, Power, Hardware, Software failure = I would open the phone app to close all intra day positions and monitor my swing trades that way.
Also, I use 2 trading platforms with the same broker when I day trade (the 1st and free broker trading platform + Jigsaw, could be any API neutral platform like Multicharts), just in case one has an issue.
There are three, or actually four, places where stop "functionality" in a broad sense can reside:
1. Your computer. (Bad).
2. Your broker's servers (Better) or your order processing service's servers (Better yet)
3. The exchange's servers (Best).
In most cases, a plain ordinary stop order, just an order to get you out at a certain price, will be on the exchange's servers, which is where you want it. If you want anything fancy done with it, such as trailing it automatically or being part of an OCO, that functionality, the automatic management part, is never going to be on the exchange's servers, because that is not part of any exchange order type. Where can it be, then? One of the other two.
You want it to be not on choice #1, your machine. But you will have to find out, from the vendor of your trading platform and/or your broker and/or your order service, where it is. I don't think a regular, ordinary stop would ever be only on your computer. But how it is managed has to happen someplace other than the exchange itself, so that is at number 1 or 2.
To make the distinction clear, there is no exchange order called an OCO and there is no exchange order called a Trailing Stop. For two orders to be linked, or for a stop to be automatically moved, the linkage or movement is going to be done at one of the first two levels, and if it's your computer, then you are at risk of the management part not happening. The stop part -- getting the stop order out of your computer and onto someone elses's computer, preferably the exchange's, is not, to my knowledge, the issue. For example, if you do not have server side OCO, this should mean that (1) you initially enter the stop and target and these are passed on as regular ordinary orders to the exchange, and (2) the linkage between them, the "Order "Cancels Order" part, has to be managed either on your computer or someone else's server. It isn't going to happen on the exchange, but the initial orders should be there -- just the management won't be.
I will have to add, "to my knowledge," because I don't know how every combination of platform/broker/order service handles everything. You will have to research this with your specific situation to be sure you know what parts execute where.
But the original concern was whether a plain vanilla stop is sitting on your computer or outside of it, and the plain vanilla answer is "outside," at the exchange. The attachment between orders will not be at the exchange, and you do want to be sure it's server side if you want to be sure that it will happen.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
My mind was noodling a bit last night, and I wanted to add another dimension to this “What Can Go Wrong” thread.
I’ve had the unfortunate experience of dealing with litigation in the past, and the common disclosure we all hear in futures got me thinking last night... We all hear the notorious “… you can lose more than your investment.” Also, we all hear that the worst nightmare of every trader ---is the dreaded margin call. And so, what I’m trying to figure out is: does your broker even let your account go negative, or will they liquidate your positions automatically on a margin call and bust your account before you go negative?
If one can lose more than their investment, it implies the account can go beyond zero and the trader is responsible for the full extent of the loses even past zero. Has anyone had experience or have stories/anecdotes of traders busting an account and being “in the negative?” Or does anyone know of any stories where traders ended up being on the receiving end of a lawsuit from their broker for loses past zero?
It’s bad enough to go to zero, but it’s doubly worse if you blow the account going negative and are handed a bill for an additional couple grand you might not have at the moment. It’s triple-y worse if the next thing you know, …you’re being sued.
I’m just trying to make sure I truly understand the risks.
I continue to read a little every night, and I discovered another thread here on here that I thought I'd mention here, because it is kind of one of those "oh crap panic" moments. The big take away for me was to be aware of erroneous data/reporting ---don't assume you necessarily screwed up and react out of panic. Be explicitly cognizant of your positions and their status.
Essentially, what happened was an outage at an FCM caused erroneous reporting of positions that clients were not actually in. So, folks woke up and saw these erroneous positions and thought "holy sh**! I'm in the market", ---thinking they were flat the previous night. Some, in a panic, immediately put on trades to close / cover the open positions. The problem then became, those were *real* trades, and those that thought this closed a position were in fact opening positions. As BM says in the thread (included below)
I'm a little freaked out right now, so I'll see if I can write coherently...bare with me.
Yesterday morning when I finished my session I was flat. I had closed all my trades and my platform had said I was flat. However...Last night, after my …
Along the lines of broker/software errors, this one is a career-ending heartbreaker. Pasting as a non-URL since apparently it doesn't respect the time param:
Consider having a second smaller account with a different clearing firm and data provider. This will allow you to hedge in the event you get stuck in a position on your main broker. For example, main broker is X with CQG. Secondary broker is Y with TT. This won't always work with more exotic markets, but you can usually find a comparable hedge even if your broker doesn't support what you're stuck in.
