No clue how this works

Discussion in 'Order Execution' started by shark, Jan 27, 2010.

  1. shark


    Heres a scenario.. another 9/11 type of situation happens and of course just about everything crashes. So while nearly everyone is trying to dump their portfolios to escape the ensuing market crash, who the hell is buying? Shouldnt it be totally impossible to sell an asset that is obviously crashing hard and will continue to crash? Or do sell orders simply not go through due to the lack of buyers?

  2. It would depend on the exchange, I think. Some will hold on to the market orders in a queue, and as soon as anyone makes a market at any price they'll execute. Other exchanges (especially open outcry) effectively stop trading when something like that happens.

    Entering a market order into a market where no one there to take the other side is dumb though. You can't really complain about ANY fill price you get, no matter how terrible, if you do that.
  3. Just to continue the dabate where the previous post ended. Silly you, That's exactly how typical noobs react and that's precisely what the Wall Street wants you to believe. Did the world end when the Twin Towers came tumbling down on 9/11? Hell no!

    Just imagine you bought and held your portfolio until the highs made on July 2007? Now that's how you should trade (I mean invest), namely BUY LOW AND SELL HIGH.
  4. shark


    This makes sense..if you try to dump everything you get a horrible price that is probably lower than it would have crashed to anyway.

    & Its hard to believe that you can predict a market high 6 years down the line unless you have major insider connections.

  5. Now you know why shorting is SO important to the system. They will be bidding to cover. Not to mention market makers are required to participate both sides of the market.

    If you want disturbing volatility, ban shorting.
  6. Not everyone is a momentum/trend follower. There is a lot of capital out there that invests long-term on fundamentals.

    Let's say Fidelity does some analysis and decides they would buy any company on the S&P500 at 20% under it's current price in a general market, non- company-specific black swan event. They can do this because they know that it would just be an over-reaction, those companies became a bargain, and they can afford to wait it out.

    Then TRowPrice does similar research and they hear where Fidelity put their limit buys, so they put theirs at 19% under market to beat out the guys from Fidelity.

    Then Vanguard does the same, and puts their limit buys at 18%..

    ..and so on until you have price discovery, even in a 9/11 type event.

    Prices didn't go to zero at the start of WWI or WWII or 9/11 or at any other time, and they won't go to zero even if Obama came right out and said he was going to outlaw ownership of equities under penalty of death. Because a guy like me would take the risk and buy Chevron stock at $1 a share, then somebody else would outdo me and take a risk at $2 a share.. and so on up to price discovery.
  7. shark


    haha all of this is proving to be quite a bit more complex than i expected, very interesting though.
  8. I can't imagine a scenario where the broad market would drop so low that there are no bidders. Individual stocks, maybe. But even Enron, AIG, Refco gapped down 80 to 90%, not 100%. It's rare that a company will be revealed to be totally worthless, and even then, people were even buying the shares of bankrupt GM even when it was pretty clear they'd be worthless.
  9. Exactly.

    Ford went down to a buck and a half. Some people bought there, I know this because sales were recorded and every sale requires a seller and a buyer.

    Some of those people said "what the hell, it's just a buck and a half". And well, those people hit a 10 bagger in less than a year.
  10. maxpi


    There are buyers all the way down. In the crash of '87 lots of traders bought the dips and were stopped out repeatedly until they were broke.

    I like my screen trading capability with my charting package. As soon as I get filled a stop market order is placed. I can't be caught with no stop in place and I'll get filled the very moment the market begins to react..

    Know this though, on some exchanges the guys that have a seat on the exchange can get to the front of the que in an emergency, it's part of the deal for buying the seat..
    #10     Jan 31, 2010