I know for a fact that some traders, especially at prop firms, do not use hard stop orders but exit the position manually instead. Now, how is that reasonable from the risk management perspective? I am talking not only about the market risk but a simple technical issue of losing connection to the exchange. Sure, you can always phone your broker but first, it takes time, and second, what if they do not answer for 10 minutes because there might be just one human on the desk trying to handle a dozen phone calls? Given all the above, is using Stop Market orders when scalping a solution? Maybe OCO bracket orders? Do you use hard stop orders?
Gonna tell you my experience. I was trading futures with manual closes, and in my case I never had a conection problem. But you should care. First, on a high speed movement you wont be able to react close were you really want. In addition to that, you many times cannot exit the market if there is not liquidity for doing so. Be concern also that depending on wich market are you trading maybe stops orders are not allowed. Long ago regulators were studing alowing or not stop market orders. My conclusion is use hard stop orders couse at the end if the platform is good it will work. Otherwise there will be many factors out of your control that could fail.
Thank you for your view. Another risk I see is a situation where you have both stop and profit-taking limit orders working on the exchange, you lose connection and both orders are executed, leaving you with an undesired position as a result. So, are OCO bracket orders the best solution?
I traded for 25 years as an option market maker and almost one year at a JBO/PROP firm and never used one STOP or STOP LIMIT order.
OK. How did you manage risk? Was it by hedging? Also, have you ever experienced loss of connection when in position?
I was not day trading but position trading so hedging was more common than not hedging. In addition, I don't trust stop order with options and would never use them as I know that during times of stress, options markets can get very wide for short periods of time. If I'm watching trading, I don't use stop orders for stock either. Not DT. When I trade futures which is more short term, I do now use stop orders, but mostly because I can't watch it like a full time trader would and I often hold a position while I'm sleeping.
What you say never happened to me. But anyway Robert knows much more than me. I remember a time, where trading ES manually, I had mouse issues, then I was unable to exist on a loose position. Thats why then I wonder if would have been better to do it automatically. But probably if there is not problem, it will be ok. Good luck anyway.
Stoplosses should be used imo but even then it is still a risky business. Read these articles. A move to change the triggering of orders based on quotations not actual transactions. Think the folks are looking out for your good and wellbeing? https://www.sec.gov/investor/alerts/trading101basics.pdf https://www.sec.gov/rules/sro/finra/2011/34-63885.pdf You might wanna do a little reading on the issue here.... https://bclund.com/2011/09/28/3-ways-the-exchanges-screw-with-your-stop-orders/
I trade futures only so there are different rules here. However, I did some research on the issue and CME rules - did you know that a Stop Market order actually becomes a Stop Limit order at a specified price below the initial Stop Market level? For instance, for ES it is 8 ticks as far as I remember. For other products it might be 20 ticks and so on. However, the priority here goes to Stop Market orders before Stop Limit orders so I guess it is better to place a Market order.