Spurious stop hitting
tradetowin said:
is there anyone who experienced CMC runs the price to fish your stops?
This is my first posting on T2W and I am hoping that some of the experienced posters on this spreadbetting thread will offer their insights on spurious stop hitting.
I trade an EOD swing system on major indices and spreadbet through CMC. I changed to CMC from IG Index because their spreads were the lowest and I like the professional feel of the MarketMaker platform. I use automatic stops (not guaranteed) for both entry and loss exit because I have a day job where I cannot react quickly to entry to exit signals. The only issue I have with CMC is when my stop is hit even though, according to the true market price adjusted for half-spread, it should not have been. This appears to me to happen too often than coincidence should allow.
To my mind the options to get around this are:
1)
Complain – I have several times but my efforts have been futile. The standard response is “look at our chart and you will see your level was touched” which of course simply sidesteps the complaint.
2)
Change to another provider – I suspect all spreadbet providers are very much the same in this respect. Better the devil you know perhaps.
3)
Use “screen” orders – A very experienced trader suggested this to me and I believe it is an order where the spreadbet stop order is only activated when the true market price reaches that level. When I enquired with CMC they reacted as if I was from another planet. I can only assume such orders are only accessible to big traders, the sort of people who can also negotiate lower spreads.
4)
Use mental stops not automatic stops – Unfortunately this is just not practical for me due to the nature of my day job. Also, especially when long, I would be exposed to a major unforeseen event that causes the market to move dramatically and result in a huge loss.
5)
Place my stops further away – I accept that my stops are placed in obvious areas, often below swing lows and above swing highs, but those places are logical for the method and were used for my back-testing. I could place the stops a little further away but that simply means all my losses will be larger and all my wins smaller. Put another way, I am paying a larger spread. For this to be efficacious it would have to avoid enough spurious stop hits. A quick calculation indicates there is little if any net benefit.
6)
Place my stops closer – This might be something I will look at back-testing at some point in the future. But it is inconsistent with my method and the same problem can still arise, albeit perhaps less frequently because the stop is not in any obvious place.
I feel I am between a rock and a hard place. Perhaps I just have to grit my teeth and accept spurious stop hitting as an inevitable frictional cost of my method and trading constraints. For those of you who have survived reading to this point, I would be extremely grateful for any insights you have to offer. For example:
a) Do I have any other options?
b) Screen orders sound like the solution but can a small punter like me access them?
c) Why do spurious stops occur? I don’t necessarily subscribe to the conspiracy theory that spreadbet providers deliberately run stops but a simple check of the daily highs and lows of the CMC index bid prices against the true market index prices shows they can vary by several points more than half the spread. And the faster the market at those extremes the larger the possible deviation. So is the spreadbet provider simply protecting itself at these daily extremes or is something more sinister going on?
Many thanks in advance for any responses.
