how often does this happen ? trader "A" has overleveraged himself intraday and mr market somehow forces him to reduce his position as the overnight margin rates come into affect shortly before the close of the days session before going back in the direction that was making money for him ? this happened 2 times to me this week had a hedged position or spread on ... and had to reduce or was auto liquidated of some of my shares nearing the close of the NYSE session did not cost me much money but I am curious if this is a daily occurance that MM's or trading firms or HF try to take advantage of "the other side" who is less capitalized ?
Well I have always been skeptical about the subject of "stop running". I don't suggest that people would try to do that, but it is a little harder to do (in most markets) that most people suggest I will tell you that from a professional's point of view, the retail trade brings it upon themselves, by not understanding the way that margin works, nor do they understand the logistics at work on a daily basis. I can give you an example When oils first started to ramp up in price, professionals confined their speculative actions to the futures market for crude oil. In contrast the retail traders, got way extended trying to jump on the integrated oils on the equities side. There was a time shortly after the initial boom, that price broke down and in the futures market some specs got slapped around of course. In the equities market what happened was that on Friday at about 1pm EST, compliance officers from every brokerage would recieve their reports and they would have till 3pm to bring accounts into compliance (margin calls). They would start liquidating positions and some may have noticed that shares of the integrated oils would plunge every Friday from about 1pm. Some would call this stop running. But actually it was simply the retail trade getting their asses kicked because of their own ignorance and lack of risk management skills. Sorry if I seem critical, but really folks you're supposed to know better. Steve
yeah, it waz fun to short vlo off the bat on friday...after it went from up 1%+ to unch, stock begun plummetin' so far so fast mms widened the spread by 30c and more...those three thick red shites zure were a grace to the borrowers' pnls...no kiddin'.
I think natural market forces will cause such action to occur, as stops are generally left in the same places and tend to cascade against each other. All it takes is a single undercapitalized trader that is forced to sell into an illiquid market (eg, ecbot gold or silver market after pit hours, esp prior to etf's) to set things in motion. It's pretty obvious sometimes when there's forced covering so it's natural for prices to quickly rebound the other way as well.