tymjr, The difference between the two IMO is that trailing stops bunch up where traditional stops are scattered about. Say a stock is rallying along nicely. Stops keep inching higher and higher, more stops are added as other trade. Say this goes on for a couple of months and thus potentially you can get into a situation where there are a large number of stops roughly with the same trigger price. Then bad news, the stock gaps down and the move gets exagerated by a flood of market orders. In terms of network capacity and potential regulatory enquiry I see this as a major difference.
lets be objective here, traders go both long and short. what about the danger of stops being triggered on short positions and causing a pop in price? wouldn't that 'danger' offset the other? this type of thinking is extremely dangerous because if we start to meddle with the workings of a market where do we stop? they implemented the up-tick rule to stop crashes.....it didnt work, they implemented circuit breakers.....etc. now IB suggests removing trailing stop losses...sheesh! c'mon guys will we learn nothing from history?
How is it that automated trailing stops homoginize stop placement among traders? Why would "traditional" stops that, presumably, are already in place, excluding the idea that some traders do not use them, gravitate toward uniformity due to the ability to execute automatically? Yea, what he said! Jeez, that's a terrible picture of me. Are you suggesting that IB could be blamed for an adverse turn in the market due to the implementation of automated trailing stops?
i knew you guys would tear me apart on my statement but i do have a fair amount of experience with automated systems and regulators. I've also actively participated in a number of so called crashes (87, 90, red chip meltup and meltdown in Asia, etc). it will take an awful lot of convincing to make me believe a manual process is as efficient as an automated process. Keep in mind the above comments on why I think trailing stops are different are MY opinion and not IB's. I also never said whether I am personally for or against trailing stops, I just said they are different animals. As for regulators, maybe I am paranoid but again experience is a factor in my statement. Look at what is happening in the states with the new SEC rules, limitations on option trading etc. In addition, I am overseas and have first hand experience of a government intervening in the markets and the regulators who sought to get to the bottom of it. Oh, and if any of you follow Japan, you may have read that Goldman Sachs is being penalized this month (they can't trade warrants and bonds) for actually mis-pricing a warrant on an automated system. The mispricing was against them, they lost a ton of cash but the regulators are still penalizing them for "manipulating" the markets. Call me paranoid if you must.
Paranoid? Not likely. I just wanted to clarify where I thought you might be coming from. I've got no problems with your opinion. Thanks for the response.
ok, bear with me here as I revisit this topic after a few days. Traders want/need trailing stops, while IB's viewpoint is that they are the spawn of the devil (just joking!) How about a compromise? Trailing stops that are only active during one trading day. Once the market closes, they are cleared off the system. This avoids, the "bunching up" effect that concerns IB because it is in effect only for one day. Hardly enough time for trailing stops to collect and cause a pocket of illiquidity. And it provides traders with the trailing stop they want. But only for the day. Since many/most traders involved with IB are intraday traders, my suspicion is that they will be more than happy with this arrangement. The balls in your court.
babak, i've done all I can do on this topic and thus suggest you send your post to the ibmgt e-mail link.