I had a nightmare - I had a position in the market when all of a sudden all bids and offers pulled out and I was hit with an infinite loss and a negative balance in my account Has this ever happened in any market? I know something similar happens every now and then in the forex market - e.g. GBP/USD flash crash in 2016. Has this ever happened in futures or equities? Forex market appeals to me but I see no way to protect against such price spikes. How can you trade FX being aware of this?
You don't mention which day, product or asset class was being traded when this happened. In general, liquidity dries up close to scheduled data releases. For example, if you were trading EUR/USD in the vicinity of NFP being announced and you were not aware of it, you might be looking at being severely offside in a fraction of a second. Of course the opposite is also true. Unexpected events, either driven by fundamentals or by market dynamics, also happen from time to time. Nobody who trades directionally can be 100% protected by these events. When you enter the market you sign up for uncertainty. The best you can do is to prepare: be conscious of market events such as scheduled releases, be aware of market context, ensure that your money management is sound. There are several squawk services and economic calendars that may help with scheduled releases. The rest comes with experience.
It happened during the flash crash, some equities traded at 1 cent and some traded at ridiculously high prints (can't recall the max). These were prints from market orders when market makers backed away to the lowest/highest possible bid/ask on individual equities (to comply with regulations that they need to be showing a bid/ask at some price).
Did brokers liquidate everybody at 1 cent? Sounds like something that brokers will love to do in order to honor margins
so, basically, it takes one event like that and a trader is gone. I cannot imagine that kind of a situation - there will always be "warning signs", I believe, like extreme spike initially, but allowing to exit the position at a reasonable price, and then the trading might just stop. I wish there were more recordings of market depth during these past events - so far I have only found E-mini S&P500 futures during 2010 flash crash - but that still looked alright - there were bids, offers, just the range of the downward move was impressive
August 2015 I think it was, mini flash crash. That was at the open though. Huge gap down. on equities there are circuit breakers kind of like futures limit up/down. But if the market still wants to go, their can be drastic moves with no liquidity.
%% Depends on the market. IF they don't hit my limit order in...……… ; I use market orders, liquid stuff about 95% of the time. Can get ripped off with stuff like DON, semi liquid, 250K av day vol, Wisdom Tree offered free trades , WAY before SCHW,ALLY IBKR. BUT they gave you a hint, had to keep it 30 days LOL. I think M Steinhardt was worried about short term traders messing up his chart pattern on that LOL?? And my plan forbids/flash crash/ panic selling; planned selling is fine
This will only be true if you don't use any proper money management rules. Waging your entire capital on one trade is more like gambling.