Traders' Roundtable

Many traders were surprised yesterday when trading the mini-silver contract at the CBOT. Why???? Because the CBOT had a rule that said if your stop was surpassed by 3 cents before it was filled that the stop was cancelled!!!!!

This is insane, the CBOT is basically saying, “Hey, you already lost too much money so were going to just cancel your stop and let you potentially have unlimited lossesâ€

could you post a url from their web cite?
i was not aware of this rule and would love a reference. thank you.

If true, and I'm not doubting what you say. Its inexcusable. The intention is probably to prevent a pool of stops coming together to create a meltdown. Ive been caught in those in the dow in its early ecbot days. . The order was filled some absurd amount from the order price. Way out of reasonable bounds. They did bust the trade. tg. as the mkt quickly regained footing. Sort of a catch22. I say get rid of the computers and bring back flesh and blood to the pits. But then, I'm dinosourlike in that way. Sometimes no substitute for human judgement. Please keep us updated on your findings.

[quote="futurestrader111"]Many traders were surprised yesterday when trading the mini-silver contract at the CBOT. Why???? Because the CBOT had a rule that said if your stop was surpassed by 3 cents before it was filled that the stop was cancelled!!!!!

This is insane, the CBOT is basically saying, “Hey, you already lost too much money so were going to just cancel your stop and let you potentially have unlimited lossesâ€

Sometimes it depends on your broker. For PFG, they send me an email on 20 Apr as follows:
"PFG Email Update

eCBOT Stop Orders (Apr. 20, 2006)

Some customers who were trading silver today might have had stop orders cancelled due to the way eCBOT handles those order types. If market prices move past an order's designated stop price on eCBOT, that order will be cancelled if it doesn't get filled within a predetermined price range. Silver prices moved so quickly during this morning's activity that many stop orders were cancelled because the market moved through silver's designated price range before those orders were filled.

In response to the high number of stop orders that were cancelled by the exchange, the CBOT market operations department increased the allowable price range to ten cents for silver.

Please contact the PFG Trade Desk if you would like to check on the status of any silver stop orders that you placed today (800-759-0062/312-775-3030).

If you have any questions please contact PFG Customer Service at 312-775-3572 or 888-274-2916.

Ryan Hansen
Corporate CRM / Customer Service Manager
888-274-2916


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Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options."

For Interactive Brokers, they said nothing. It's funny - they send you "webinar" notices and all sort of notices you don't need but misses on the all important ones.

Mike,

You will notice they published this for their customers AFTER the problem!! If all their customers knew about it why would they have had to publish a special report explaining it AFTER the event? During the exact meltdown moment several of the worlds largest FCM's that I am aware of and was in contact with didnt know what was going on.

Yes of course EVERYBODY knew about it (and could perfectly explain it) AFTERWARDS (so the F what). The question is WHY did it need to be specially explained later? The answer................... Because the CBOT blew it and had a stupid rule that almost nobody knew existed.

P.S. Redrock, even if I try and see your point about good intentions and preventing a meltdown consider this. The limit was set at 3 cents when the ATR was about 5 cents per day... The day before the drop the ATR was about 65 cents! Why the hell didnt they have that limit expanded to match the enourmous increase in volatility? They dropped the ball, big time.

futurestrader111 wrote:P.S. Redrock, even if I try and see your point about good intentions and preventing a meltdown consider this. The limit was set at 3 cents when the ATR was about 5 cents per day... The day before the drop the ATR was about 65 cents! Why the hell didnt they have that limit expanded to match the enourmous increase in volatility? They dropped the ball, big time.

I dont disagree the sim stop "envelope" should be modulated to match volatility. Or be eliminated and well, come what may...... The stop limit is the only way the client retains control of the trade process. Yet risks having the limit exceeded unfilled and you are in the same boat as canceled. I try using a stop limit with a stupid large limit for exits. I'm more selective on new position entries, but that has its own risks in lttf. The point was I dont believe the oversight was malicious on cbots part. They are a pretty stoic lot.

Im sure somewhere along the way we all signed disclaimers acknowledging the risks inherent with electronic order entry into electronic exchanges... buyer beware... read the fine print etc etc etc. Having said all that... I can feel your pain! You have to figure that if you are lucky enough to survive for the long term in this craft... You will have large errors in your favor... and not so favorable. Hopefully, they will even out over time. Suppose your stop price was hit. The order not filled, and price rebounds to your gain of a sizable amount of cash. Because due to an error or glitch, you still have the trade.

futurestrader111, the email was received before Friday so someone could still put in the stops before the open. Anyway, it's better late than never. In view of this and my other recent experience, I decided to start a thread about pitfalls in exchange and brokers rules.