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This is not a white or black issue. There is just a whole lot of grey. There
are no guarantees anywhere.
1) The OM server from the CME, which handles stops and market orders, has in
the past elected stops that should not have been elected. That problem has
not resurfaced, but did at one time exist.
2) Globex2 only accepts Stop-Limits internally held. If you really want a
stop in, put in a stop limit and define the parameters yourself. You have
the ability to judge the volatility of the market and the probability your
stop limit will be filled.
3) Many stops are really sent to the exchange as limit orders, set to a
certain number of points above or below the stop price. In fact, the LIFFE
uses a band around the market price or settlement price and no trades may be
executed outside of that moving band for a specific order. Thus, the a/c/e
bond problem at the CBOT in late December would not have been so severe if it
had the LIFFE bands. For one the movement of the market would have been less
and two no trades would have been busted. Of some 9000 or so contracts
erroneously executed by a Morgan Stanley clerk, 1800 of them were busted.
4) I am reluctant to put stops into a/c/e during thinly traded times or in
back months because there is no limit to the stops. In fact the daily price
limits on a/c/e really don't exist. It is hoped the market will not move
that far because of the doubling of the limits. If one limit is hit, trading
halts. I will have to review the manual again for the rules, but it sounded
like a problem waiting to happen. Think natural gas like movement in
soybeans, for example.
5) The concentration of orders on a specific machine or firm could cause
system failures. Load balancing is a big issue with all these systems. The
biggest problems seem to be on the spikes of activity. Globex2 can handle 35
transactions per second, the last time I checked. What sometimes happens is
a que of orders to be executed can back up. Sometimes they even freeze (too
much all at once) and are recycled automatically or reset manually. Having
control or being able to monitor system status on your local machine does
have some value. But, I agree with Earl that this would not be my preferred
method.
6) Being the fastest with the orders is not always the best. Given the way
that the arbitrage between the pit and the screen works, sometimes right
after the spikes comes the opposite side bids or offers to move the market
back in line. Being a little late can sometimes give you a much better fill.
Being 1/10 of a second faster on a big spike may not really give you that
much better fill. I think you will find your emini fills pretty evenly
distributed around your stop price in a bell curve distribution. I don't
think it will vary that much from TOPS to FIX. Yes, there is the spikes
which can be disastrous, but luck may have much more to do with the result
than the method of sending them in. The fast traders who bought the 104-16
bonds where the ones who got nailed with busted trades. As my father used to
say, I would rather be lucky than good. But I also think you make your own
luck with hard work (and strict money management for trading).
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it! John J.
Lothian is the President of the Electronic Trading Division of The Price
Futures Group, Inc., an Introducing Broker.
In a message dated 1/5/01 6:37:00 PM Central Standard Time, eadamy@xxxxxxxxxx
writes:
<< Retail traders who trade over the internet with broker desk for backup
would
appear to be at a severe disadvantage with stops held on the trader's
machine. Should anything occur from system crash (common among the large
number of trader computers with Win9x/Me deployed) to software malfunction
and loss of internet connection, the trader who deploys stops for money
management would be stark naked in all open positions. The trader's sole
protection is the ability to log and reference an exchange order reference
prior to occurrence of any stop event.
Earl >>
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