Stop Order Handling - Which is Better?

Discussion in 'Order Execution' started by cwb1014, Jan 13, 2006.

  1. cwb1014


    Some brokers transmit stop orders to the relevant market as soon as they are placed. Other brokers hold stop orders internally until they become marketable and then transmit the order to the relevant market.

    I'm wondering which method ET members feel is preferable. So that you'll know, I'm primarily interested in the answer with respect to stocks, although it would be interesting to know how this would work with futures and options.

    I'm also wondering whether the answer may depend on whether the order is a conventional stop order (which converts to a market order when it becomes marketable) or a stop limit order (which converts to a limit order at a specified price when the order becomes marketable). Lastly, might the answer depend on what the relevant market is (e.g., NYSE, NASDAQ, AMEX, ARCA) and, if so, how so?

    Many thanks in advance for any help anyone can offer here.



  2. It is never a good idea to leave your stop with a specialist at NYSE or AMEX, because they are dishonest and can run your stop.

    If you are dealing with an ECN or with an electronic futures exchange, some neutral trustworthy market in the form of an order-matching engine, then you are better off with a native stop or stop-limit, that is, one residing on the market's own system, instead of one on your broker's system. Native stops and stop-limits will execute more quickly during times when delay is critical, and so, you will get better prices, and with stop-limits you will get better execution probabilities, than with stops and stop-limits held by your broker. If there is a disruption in communications, or if your broker's machines go down, then broker-held stops and stop-limits can fail completely, in situations where native stops would have functioned flawlessly.
  3. cwb1014


    Thanks for your reply, Jim. It strikes me that with NYSE and AMEX stocks, one is really between a rock and a hard place: if the specialist sees your stop, he can run it, but if he doesn't see it until it's marketable, the time priority on it may be so bad that the fill is horrible (on a stop market) or non-existent (on a stop-limit). Would others here agree and can anyone think of a solution other than not trading NYSE and AMEX stocks at all?

    If it makes a difference, the only NYSE and AMEX stocks I trade are relatively liquid (an average daily $ volume > $20 million). I'm wondering whether in these cases the prospects for specialist chicanery are diminished enough to make it safe to transmit stops to the specialists when the stops are entered at your broker.
  4. cstu


    There are rules in place where it makes it diificult for the specialist to take advantage of stop orders. Anytime there is a build up of stop orders a form must be filled out (stop order accumulation form). Once this is done it is pretty hard to put a trade on out of line.

    There are also rules whereby if the specialist participates in any part of the electing trade the stops must go on at the same price. It is a very rare instance where in a high volume stock a print will go on significantly out of line because of stops. In fact, I only remember seeing a real hosing in an s&p stock once and I was on the floor for 15 years.

    Less liquid stops are a different matter though the rules remain the same.

    You are most likely better off with the order on the specialist book.

    Nowhere is there more misinformation spread about the role of the specialist than on this website.
  5. You have been encouraged to put your faith in "rules" governing the NYSE/AMEX specialists. These rules are laughably inadequate for the protection of the public. Their enforcement is even more laughably inadequate. Enforcement of the rules is not performed by the government. It is performed by the exchanges themselves. The exchanges are dominated by the specialists. The fox guards the henhouse. Government investigations have convincingly established that the exchanges, rather than enforce their own rules, help the specialists to cover up their rule violations and systematic theft from the public. The few violations which are punished, by the exchanges, are handled in such a way as to create the illusion of a meaningful enforcement program, so that the reality of systematic theft can continue.

    Long story short. Don't leave stops with specialists.
  6. cstu


    If you don't know how an equity auction market works you are better off sticking to the Nasdaq. I will repeat, I was on the floor for fifteen years and suspect I averaged less than one stop order a day.

    I know it is popular to bash the specialist for our own inept knowledge of the market but it is relevant how big the stop orders are relative to the general liquidity of the issue being traded.

    What do you have Martha Stewart size stop orders? What do you consider an in line execution?

    We have plenty of folks here who are eager to voice an opinion and live to see their name in print. Unfortunately its too much trouble for them to do a little research and confirm facts.

    On another thread I posted the resource where any of these bozos could go and buy either the "NYSE handbook" or the "Exchange Guide", both of which are available on DVD. I am guessing that no one has taken the time to get (or read) the info.

    I am guessing that nothing much will change, but I will post the info again just for laughs.

  8. cstu


    I don't see how people confidently trade when they don't know the rules. Then again, how do you start with five thousand dollars and get 10-1 margin and trade LU all day and expect to have a career???
  9. The New York Times reported:

    October 17, 2003, Friday


    Can Exchanges Regulate Themselves as Rivalry Grows?


    .... The Amex's regulatory operation has done such a horrible job that it is all but certain that some of its employees -- and possibly the exchange itself -- will face disciplinary action by the Securities and Exchange Commission.

    The Amex's sins, as laid out in a blistering S.E.C. staff report, include routinely overlooking rule violations by Amex specialists. The exchange promised to improve its regulation and then tried to cover up its failure to do so....

    The S.E.C. staff report, a copy of which was provided to me after it was reported by Bloomberg News, found a pattern of what might politely be called captive regulators who did little....

    The day traders complain that the specialists routinely fail to comply with the exchange's ''firm quote'' rule, which basically says that if a specialist quotes a price he will stand by it.

    The S.E.C. report, dated June 23, found that the exchange ''has not meaningfully enforced the rule'' since it became effective in 2001. Moreover, it found that specialists routinely discriminated against orders from brokerage firms that catered to day traders.

    for more, if you are interested in the true facts proving that NYSE and AMEX are lying to us.

    P.S. This one link is only the beginning. A tremendous amount of information has been publicized about the criminals running the exchanges. This information includes actual criminal charges against these criminals.
  10. cwb1014



    The link you posted takes me to a "Page not found" error message at . I think this is because of the very poor way ET handles long links (i.e., it removes part of them and, of course, then they don't work).

    If you could repost the link as text, which is easy to do by removing, in the Preview Reply window, the "url" and "/url" that ET puts inside brackets around links, that would be great. I'd actually like to see the document you're referring to.

    Speaking of the very poor way that ET does things, if any of you have any suggestions for improving the site, don't hesitate to send them to real soon. They're apparently updating the site these days and it would be great to see it improved as much as possible.

    Many thanks in advance.


    #10     Jan 13, 2006