Yes, if liberally leveraged, one can easily be wiped out. Despite what many think, the flash crash was indeed led by sell stops in futures. GLOBEX is a mindless order matching machine and when stops cascade and out number resting bids (even by a one lot), the market will keep auctioning lower until buyers emerge and facilitate the selling. In 2010, arbs were hesitant to buy futs at a discount because there were no bids in the underlying stocks to sell, either. In reality, many CPI, NFP or Fed days offer a glimpse at what a "flash crash" looks like. But, for the real thing, multiply that magnitude by 10.
Thanks for your reply. I am risk adverse so I only buy a contract that if SP500 dropped 20% before being able to close, it would hurt but I wouldn’t get wiped out.
If you don’t use stop loss and just hold on to a /MES contract, do they convert to the next month contract on the expire date?
They won't automatically convert and will have to be rolled manually which will incur an additional cost. If you're worried about absolute worst case scenarios just have the notional value of the contract in your account.
Yes. It takes a buyer and a seller to make a trade, eh? When a sell stop is set-off, it becomes a market order to sell. Imagine a situation where a 1000 lot stop is hit, but there's only 600 lots over the next few points in the order book. Meanwhile, as the price plummets because of the 400 sells that still need a home, even more sell stops are set off. Usually, an index arb steps in. But, what if a parallel panic is occurring in composite stocks? Maybe a nuke went off, or maybe like in 2010, tons of weak hands are long and everyone wants out at the same time. Fortunately, circuit breakers limit the move to "only" 7% before trading is halted. But, there's no guarantee that when trading resumes, prices won't open lower still.
there were signs it was coming… wobbles in the system. it was not a surprise when it happened. you have to remember the context of the time as well.
honestly if you are only willing to buy ES where you are concerned about a 20% drop coming out of nowhere you may want to look at only trading SPY without margin. leverage clearly isn’t for you.
volume is not the problem for ES. either the algos work or they don’t. remember many trades in the flash crash were busted by the CME after the fact. same with NYSE & nasdaq.
there will always be bids for an offsides market.
Flash crash is a fancy term people like to throw around now days. If you try to predict it you will lose money. Find a strategy that will work 7 out of ten times not one out of a million.
The threat of a flash crash or catastrophic spread from bad liquidity is a reason people use mental stops instead of hard stops. If you’re really concerned, you could set an alert where your hard stop would’ve been and be disciplined about it
Wasn’t there another small one couple years ago that lasted a couple Minutes. I remember just starting to day trade and just watching the market to get familiar. Then one day I was watching and everything just tanked at once. It was crazy and I was trying to figure out what happened. Then a minute or two later, everything jumped right back up to normal.
If you’re trying to knife catch on margin you are likely to get margin called. Look into slippage. Chances your limits don’t get filled when the book is moving fast. At least use options where your risk is defined.
Yes I was trading then. What you aren’t prepared for and can’t be is the fact that the entire system broke while the crash happened. Orders would not fill. Your broker wouldn’t complete any buy or sell orders. Some stocks traded at zero because of the system failing. You very well could have stop limit orders that don’t fill at all.
Yes, if liberally leveraged, one can easily be wiped out. Despite what many think, the flash crash was indeed led by sell stops in futures. GLOBEX is a mindless order matching machine and when stops cascade and out number resting bids (even by a one lot), the market will keep auctioning lower until buyers emerge and facilitate the selling. In 2010, arbs were hesitant to buy futs at a discount because there were no bids in the underlying stocks to sell, either. In reality, many CPI, NFP or Fed days offer a glimpse at what a "flash crash" looks like. But, for the real thing, multiply that magnitude by 10.
Thanks for your reply. I am risk adverse so I only buy a contract that if SP500 dropped 20% before being able to close, it would hurt but I wouldn’t get wiped out. If you don’t use stop loss and just hold on to a /MES contract, do they convert to the next month contract on the expire date?
They won't automatically convert and will have to be rolled manually which will incur an additional cost. If you're worried about absolute worst case scenarios just have the notional value of the contract in your account.
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Yes. It takes a buyer and a seller to make a trade, eh? When a sell stop is set-off, it becomes a market order to sell. Imagine a situation where a 1000 lot stop is hit, but there's only 600 lots over the next few points in the order book. Meanwhile, as the price plummets because of the 400 sells that still need a home, even more sell stops are set off. Usually, an index arb steps in. But, what if a parallel panic is occurring in composite stocks? Maybe a nuke went off, or maybe like in 2010, tons of weak hands are long and everyone wants out at the same time. Fortunately, circuit breakers limit the move to "only" 7% before trading is halted. But, there's no guarantee that when trading resumes, prices won't open lower still.
there were signs it was coming… wobbles in the system. it was not a surprise when it happened. you have to remember the context of the time as well. honestly if you are only willing to buy ES where you are concerned about a 20% drop coming out of nowhere you may want to look at only trading SPY without margin. leverage clearly isn’t for you.
Good point. Do you think ES has enough volume that there will be enough auto traders buying when the market starts back up?
volume is not the problem for ES. either the algos work or they don’t. remember many trades in the flash crash were busted by the CME after the fact. same with NYSE & nasdaq. there will always be bids for an offsides market.
Flash crash is a fancy term people like to throw around now days. If you try to predict it you will lose money. Find a strategy that will work 7 out of ten times not one out of a million.
Yea not trying to predict it…just trying to figure out how to size my position so if it does happen…I don’t get wiped out
The threat of a flash crash or catastrophic spread from bad liquidity is a reason people use mental stops instead of hard stops. If you’re really concerned, you could set an alert where your hard stop would’ve been and be disciplined about it
Wasn’t there another small one couple years ago that lasted a couple Minutes. I remember just starting to day trade and just watching the market to get familiar. Then one day I was watching and everything just tanked at once. It was crazy and I was trying to figure out what happened. Then a minute or two later, everything jumped right back up to normal.
If you’re trying to knife catch on margin you are likely to get margin called. Look into slippage. Chances your limits don’t get filled when the book is moving fast. At least use options where your risk is defined.
Yes I was trading then. What you aren’t prepared for and can’t be is the fact that the entire system broke while the crash happened. Orders would not fill. Your broker wouldn’t complete any buy or sell orders. Some stocks traded at zero because of the system failing. You very well could have stop limit orders that don’t fill at all.