seems a simple solution would be to to create a trailing stop limit order.. perhaps one that will only go outside the current market price by 2 dollars or so.. economic function: as someone who doesnt use IB i would like to say thanks for not letting your customers use trailing stops.. it will leave liquidity for mine to get executed at a better price.. =) kidding aside, it is an interesting arguement.. i would think that those who dont use trailing stops but would if available, do in fact use regular stops.. while regular stops would not all be grouped at exactly the same price, in a quickly declining market, the stops would be hit and generate the same type of panic/crash that Mr. Peterffy is concerned about.. anyone remember April 4, 2000? both the DOW and the NASDAQ sold off more than 500 points intraday.. if the "stops are the devil" theory was true, it would seem like the markets would have sold off to zero that day.. -good trading -qwik
trailing stop ?? ha, they can't even get a "Stop Order" to work right. You know when my 26.50 JNPR stop trigger? When Ask was 26.38, then it hit the 26.31 bid. There were lots of bid/ask at .49 .47 .42 and traded. Well, didn't trigger IB's Stop. Traniling Stop?! ha.
I've been rolling this thing over in my mind and I just can't come up with one convincing argument against trailing stops. C'mon guys, just provide a platform and we'll do the rest. And that includes taking calculated risks. Because unless I'm missing something, this is a capitalistic economic system, and that means that you provide the structure and I'll do the rest. This patronizing 'father knows best' attitude at IB rubs me the wrong way. Free markets (emphasis on 'free') have an amazing ability to function perfectly. Thousands of men before IB's chairman, and I dare say much smarted, thought they could foresee catastrophese, and plan for events in the future by analysis and simple logic. This experiment was called communism. And it failed. Let markets function. Get out of the way. Sorry for the rant but that's what you get from a believer in the Austrian school von Mises rules!!
Dear Mr. Chairman, IB employees, and members of this forum, What is the difference between a regular stop order and a trailing stop order as far as the market is concerned ... hmmmm NONE! Gimme a break! If you really believed in that methodology you posted in your long answer, you wouldn't even offer regular stops. What is the difference if a customer enters a regular stop or a trailing stop? Either one of them would be triggered if the market went against the trader. Consequently, it would take all the liquidity away as you suggest in your letter. Am I missing something here, or is this the biggest load of @#%^! I ever heard?! "Trailing stops are akin to portfolio insurance ..." No sir, all stops are akin to portfolio insurance not ONLY trailing, but ALL of them. Repeat after me, ALL stop orders can "ruin its practitioners, their carrying brokers and wreak havoc in the market with potentially dangerous repercussions for the economy." Isn't it contradictory to offer any kind of stops if you truly believe the above statement? Sorry, I think you are wrong. There is no difference between buying a stock and placing a stop, then manually adjusting it to as the stock moves in the right direction. Since you do offer one way to do it (manually), I don't see how you can be against it. If you are, I dare you to take stops away completely from your clients. According to you, it is in their best interest after all, isn't it? I'll bet that if you sent your clients an email stating that you will not be offering stop orders anymore (you can use the same answer from the original email in the first post), you will be doing a lot of ACATs Yours truly, Bill Stock Detective
PART II "The Qs finish the day with an 18% advance, a new record, attracting some profit takers the next morning. This profit taking causes a slight reversal, maybe only 20 cents, triggering a few of the closely set trailing stops. The resulting market orders from the first few trailing stop orders, hitting out ever lower resting bids, activate the trailing stops set to go off at successively larger reversals, generate more and more market orders to sell. But there are no buyers. The offer prices falls down further without any bids in sight. The avalanche of sell orders in a cascading market activates a temporary trading halt, but the selling cannot be stopped. A long list of electronic sell orders are waiting in the pipe line to be executed at any price. Longs, expecting to be closed out 20 to 200 cents under the highs, get executed at 10, 20 or 30 dollars lower than their stop price." Beautiful! Wouldn't that happen with REGULAR STOP LOSS ORDERS! Read your example carefully! The next morning .... stock trades lower ... trailing stop triggers ... and the market crashes. How about this, the next morning ... stock trades lower ... the stop loss order you placed with IB is triggered ... and the market crashes. Now Mr. Chairman, can you explain to me the difference between the two? Okay you say, "Trailing stops bunch all the stop orders near the same price level." So let's do our example all over again. The next morning ... stock trades down and penetrates major support level ... the stop loss you placed with IB is triggered and the market crashes. Do you get my point? There is no difference! A stop is a stop is a stop! If you don't believe in it, why do you offer it? Bill
Alan, Since you are on this board, i'd like to ask you an off-topic question. Who is this nut case? http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=16038282 Has he lost his mind? One day you run a 2500 a month chatroom and the next day you sue everyone. Do you care to tell me/us more about this character? http://www.elitetrader.com/vb/showthread.php?threadid=1660 Bill
sniper, IMO, there is a huge difference between trailing stops and regular stops. however, whether or not I think trailing stops (as an IB/Timber Hill employee) could possibly aggravate the markets doesn't matter. If the owner of the firm believes there is a remote possibility and has the guts to promote his viewpoint, so be it. If you want trailing stops, you'll have to go elsewhere. I've been with the firm for quite some time. All I can add is that I have the utmost respect for him and others who think outside the box. Most people have no clue how the chairman of IB revolutioned the markets. He didn't do it by following the general thought process. I posted this before but take a look at the history of the firm. You'll see that there is a vast amount of experience and possibly foresight in his comments http://www.interactivebrokers.com/html/companyInfo/history.html Nevertheless, to each his own (opinion)
My point is, what difference does it make if the stop is manually or automatically executed? hmm, good point. however that assumes that the majority of traders actually work with stops... i don't know if this is true or not, but i would wager the guess that most (of the 90 + % that don't make it) don't use stops on a disciplined basis... sort of become buy and holders when markets turn against them or become greedy when it turns positive etc... if that were true a trailing stop might be seen as a very welcome tool to delegate the decision of when to exit, and might accordingly be used more diligently than discretionary exits... thus trailing stops might hold a stronger potential to lead to the envisioned scenario than discretionary stops that are used more on a haphazard basis... add to that the possibility that ib is a de facto mm... might be an explanation of why ib would then like to limit their envisioned worst case downside risk, but then again, these are just my ideas.
Bill, Re your "off topic", would love to, but since he attacked HRE directly once or twice, I think it's better not to say anything in public. Will add this though: "Hard Right Edge does not, nor has it ever, received payment for order flow from any broker-dealer advertising or mentioned at this site" ;-)