Institutional investors have the upper hand in knowing where other institutional investors stops are at. If they can do that then what makes you think that brokers and exchanges can't??? How many times have you been stopped out while the market is bullish? And it's not only brokers, but also big players looking to make a profit. The markets are rigged, and as soon as you can accept the fact that they are then you will become a better trader.
I must be super dumb but shouldn’t your stop orders be sent to the exchange. I think having your broker hold a stop order is a bad idea. Conditional orders that brokerages have programmed in, sure since those aren’t exchange supported orders. Too lazy to see what exchange support what orders, not sure if trailing stops are supported natively. Never had any luck backtesting with trailing stops myself so never use.
Hello qlai, For the sake of logic and removing unnecessary variables from the traders day to day thinking, IMO, I think stop hunting is not something you or retail alone trader can control or worry about. Think about it...so what if MM or brokers are stop hunting. Noone knows the answer. What are you going to do about it? You can either use a tight stop loss or a wide stop loss. I personal prefer wide stop loss. Note: I am not a consistent profitable trader, yet. These comments are my personal experience and my opinion only.
@SimpleMeLike, I agree with you - we trade the markets we have, not the markets we wish to have. However, we should try to make things better. Letting HFTs manage stops is a huge conflict of interest, imo. I used to think that MMs knowing your stops was a myth, until now. Does it matter for my trading? No. I am against using stops for long term investing. When I use stops for short term trading, I use market stop orders as I just want out and willing to pay the price for immediacy and guaranteed fill.
I used to use the "Hidden Stop" option because of this. Fact of the matter is you have Hedge Funds algo trading on both sides of the market (long and short) and can only push it so far before being eaten alive themselves. If you set proper stops this isn't a big issue. The only time they will trigger is when it's in your best interest that they do.
the only way the MMs make money on these stops if they push the market, ie. if they front run orders. --> and yes this used to happen as a normal part of the game back in the days But the FCA and SEC have changed the rules that a MM can only execute once the price is activated. you cannot trade out of the stop until after you fill the client. So you saw a massive drop in trading revenue for the sell side for a bit until they were able to adjust So either - 1.) these market makers are breaking the rule or 2.) the clients are just really bad traders i think it's number 2
It may well be so, but the article doesn't prove it. No sources are given but I'm assuming the graphs are actual data taken from the rule 606 reports. All the data shows is that robinhood makes more money on nonmarketable orders than on marketable ones. The obvious explanation for this is that nonmarketable orders are more common than marketable ones, especially in options. "Nonmarketable limit order" has a specific meaning in the industry and that meaning does not relate to stop orders. The author seems to be conflating these terms, and based on that, inventing this whole story about stop hunting.
@cruisecontrol, I agree that the article is confusing. Most likely the non-marketable limit orders in the stats are the limit orders (passive orders) which are routed to MM instead of going to exchanges. Why he assumed they come from stops I don’t know. Still, I would like to know if RH and TDA using MMs to implement stops for them as a service.
I’m not thinking front running, I am thinking taking the other side of flood of orders that you know are coming from retail (non-toxic). And they don’t have to trigger anything, they can simply drop the bid or raise the ask. It only takes one lot to trigger.