Stop order execution
Posted: Tue Apr 24, 2012 8:18 pm
Ok, I admit it, I've been trading way too long. 30 years or so in stocks, 22, 23 years in futures. I've not traded (seriously) in stocks for the past 8-9 years or so, only longer term trades, some held for years, some not. I've always used stops, and until today, never came across an issue with a stock stop order.
Sometime back (8 years or so) my stock broker (and apparently many (most?) others) changed the way they execute stop orders. It's not a "real" stop order now. A sell stop is what traditionally would be called a stop bid order, and a buy stop is what traditionally would be called a stop offer order.
This bit me today in VMW where I had a sell stop at 102.64. The stock never traded below 102.66; however, my "stop" was elected and filled (at 102.69) by the NBBO bid going below my stop price. This was news to me. I've been trading futures for too long I suppose, but since MFG/Corzine stole my money and even though I have a good portion of it back, I've not traded any in the futures markets since October.
So, apparently "stock brokerages" these days treat "stop orders" as really what should be called (and have always been called) stop bid orders (for sell stops) and stop ask orders (for buy stops). EDIT: apparently, they treat a sell stop as elected if an offer prints at or below your stop price (not a bid) and visa-versa buy stop. So even though a trade never occurs, it only takes a NBBO offer to touch your price to trigger a sell stop. Rest is still the same -- invalid (to me) stop order execution and out-of-sync system versus market position.
Now it is exceedingly easy to have any system get out of sync with the market since you never get a trade, a print, at your stop price, so your system is still long, but your "stock ""broker""" elects your stop order since the NBBO bid was under your price.
Interestingly, I've found different definitions of how a stop order will be filled on this broker's web site depending on where I look. I understand that it is not only "my" brokerage firm that executes stops in this manner.
So anyway, just venting about what I consider an invalid fill and surely what my system KNOWS is an invalid fill.
How do you stock traders handle this new (i.e. this broker changed to this method about 8 years ago apparently) way stock brokers consider stop orders to be elected? How do you backtest and have any confidence in properly executing stops in your backtest? I don't think you can. Not unless you have continuous data for NBBO bids and asks in addition to actual trades. How do you trade a system in real time and not get out of sync with how your broker will execute stop orders versus what your system sees with last trade data? I don't think you can.
Am I the only schmuck that has a problem with this issue?
P.S. I find myself, uncharacteristically, being extremely short and quick tempered when dealing with brokerage firm representatives...I suppose thanks to being Corzined. Sigh...I need a new brokerage firm, the only problem is that I trust NONE OF THEM and am very wary of moving assets to another firm. They all will have major problems when and if the **** hits the fan.
Sometime back (8 years or so) my stock broker (and apparently many (most?) others) changed the way they execute stop orders. It's not a "real" stop order now. A sell stop is what traditionally would be called a stop bid order, and a buy stop is what traditionally would be called a stop offer order.
This bit me today in VMW where I had a sell stop at 102.64. The stock never traded below 102.66; however, my "stop" was elected and filled (at 102.69) by the NBBO bid going below my stop price. This was news to me. I've been trading futures for too long I suppose, but since MFG/Corzine stole my money and even though I have a good portion of it back, I've not traded any in the futures markets since October.
So, apparently "stock brokerages" these days treat "stop orders" as really what should be called (and have always been called) stop bid orders (for sell stops) and stop ask orders (for buy stops). EDIT: apparently, they treat a sell stop as elected if an offer prints at or below your stop price (not a bid) and visa-versa buy stop. So even though a trade never occurs, it only takes a NBBO offer to touch your price to trigger a sell stop. Rest is still the same -- invalid (to me) stop order execution and out-of-sync system versus market position.
Now it is exceedingly easy to have any system get out of sync with the market since you never get a trade, a print, at your stop price, so your system is still long, but your "stock ""broker""" elects your stop order since the NBBO bid was under your price.
Interestingly, I've found different definitions of how a stop order will be filled on this broker's web site depending on where I look. I understand that it is not only "my" brokerage firm that executes stops in this manner.
So anyway, just venting about what I consider an invalid fill and surely what my system KNOWS is an invalid fill.
How do you stock traders handle this new (i.e. this broker changed to this method about 8 years ago apparently) way stock brokers consider stop orders to be elected? How do you backtest and have any confidence in properly executing stops in your backtest? I don't think you can. Not unless you have continuous data for NBBO bids and asks in addition to actual trades. How do you trade a system in real time and not get out of sync with how your broker will execute stop orders versus what your system sees with last trade data? I don't think you can.
Am I the only schmuck that has a problem with this issue?
P.S. I find myself, uncharacteristically, being extremely short and quick tempered when dealing with brokerage firm representatives...I suppose thanks to being Corzined. Sigh...I need a new brokerage firm, the only problem is that I trust NONE OF THEM and am very wary of moving assets to another firm. They all will have major problems when and if the **** hits the fan.