I've had a stop fail in a normal market. Market moved right on through my stop, no execution. So yes indeed, stops can fail any time.
I would think a stop market would solve this issue as long as someone is willing to buy right? I never use stop limit for stop loss orders that's just dumb.
Really, you need to provide some detail to make this a credible statement. A stop order (not a stop limit order) will always "work"....you just may not like the execution. When I say "always", I'm not counting a situation where the market places an artificial set of circumstances into the rules. For instance, if you're trading a market which has limit moves...like most of the commodities for instance....then it's possible you would not be executed prior to the market reaching the limit move. Ouch! So if you're trading markets that have limit moves, you may want to consider that, consider what you can do if a limit move occurs. And by the way, there are limits to the stock market...frankly I've forgotten now what they are. Another possible exception has to do with your trade software. If it is set up incorrectly, or it fails, or it malfunctions in some way, then you may have a problem as well. Throw in there internet problems, etc etc. All things to consider when contemplating what your risks are. But personally, I think buying out of the money puts is a very expensive solution to the problem. OldTrader
Excellent insight, especially the points about what kind of a software trading platform you are on, and whether or not you your platform is fast and stable during volatile market periods. And this is coming from someone that was a stock-index floor trader trading my own money during every day of October of 1987. By the way, Theory always works real well on a blackboard. But when everyone is trying to get out of a movie theater at the same time, you aren't going to find the bids that you want. Thus, Portfolio Insurance becomes a joke, as stock-index futures trade at incredible DISCOUNTS to the cash market. Bear Stearns sold 32,000 S&P's on the opening of Black Monday in October of 1987 for "Portfolio Insurance" clients. Think they found good bids that allowed them to hedge their long stock positions without too much slippage? On a side note, with the new MARGIN rules that just went into effect for options ( this week ) I would think that there will be more capital freed up to maintain long stock positions. The contra to this will be an increased amount of volatility on the downside when collars are triggered because there will be more long stock out there and that long stock will have the opportunity to be easily hedged without the huge capital requirements under the previous margin rules. Derivatives such as index puts will be bought and futures will be sold in order to facilitate these downside "collars" and hedges. All of the magnitude of which will create a "turbo-charged" effect on the downside, in my opinion. But it won't matter at all if your trading platform has LATENCY issues.
Not if you have a stop market order. Limit orders fail, market orders never fail. You may not get a great fill, but you will be out of the market.
People who blew out on Feb 27 only thought they were traders. Such days help to provide the goats with a good feed (and the wolves )