Newbie question: Maximum stop loss slippage experienced?

[hart3000]

What is the maximum slippage anyone experienced with a stop loss on a heavily traded future such as the DAX (assuming a position of say, 10,000 Euro per point)?

Would be great to get a feeling, how many points (percent) one could miss a stop loss order in a mass panic (such as 1987) when everybody was running to the exit.

Any ideas / experience / pointers would be greatly appreciated.

Cheers,
Hart

:clover:

P.S.
As dcraig said in his reply, 400 DAX contracts is a large position. Intention was to check what could happen to big players. As a typical position of my startup strategy, I tested betting 2 DAX contracts with a 20 points stop loss.

 

[dcraig1]

Sounds like you are talking about spread betting. The spread betting co can do whatever it damn well pleases, so even guesstimates may be wildly inaccurate.

10000 euros per point = 400 contracts. That is a big, big position on the DAX which itself is a big contract. I would say you could slip a lot. Just look at how thin the book is just prior to economic news. And that is in normal market conditions. In a catastrophic event who knows ? 100 pts, 200pts , 500 pts. What if the exchange closes before your stop is hit? Could be any amount really.

It may be a mistake to use 1987 as a guide. In todays electronic markets, automated systems with low latency connections to the exchange would be pulling bids faster than any floor trader ever could. Liquidity? What liquidity?

In any case, I would be extremely surprised if you can find anybody around here taking position of anything like 400 DAX contracts.

 

[hart3000]

Thanks dcraig,

Very helpful comment. Actally, I am really talking about futures trading. Intention is exploring the risks. On one hand, market liquidity for major futures is excellent (much better than at spread betting or CFD market makers, I suppose). On the other hand, you can't get guaranteed stop loss orders for a future.

I would say you could slip a lot. Just look at how thin the book is just prior to economic news. And that is in normal market conditions. In a catastrophic event who knows ? 100 pts, 200pts , 500 pts. What if the exchange closes before your stop is hit? Could be any amount really.

Catastrophic events cause an index to fall, don't they? In this case, the short side should be far safer than going long?

It may be a mistake to use 1987 as a guide. In todays electronic markets, automated systems with low latency connections to the exchange would be pulling bids faster than any floor trader ever could. Liquidity? What liquidity?

You point is that nowadays, the price drops wouldn't be as steep because of higher liquidity?

 

[dcraig1]

Thanks dcraig,

Catastrophic events cause an index to fall, don't they? In this case, the short side should be far safer than going long?

I suppose so, in a way. But catastrophic events may only happen every few decades (or not as the case may be). You can lose a lot of money day in, day out by being on the wrong side of the market. Ultimately the only sensible thing to do is to ensure that your market exposure is such that you cannot be ruined by any event.

I guess, it is up to the individual to work out just what "ruin" means to them.

You point is that nowadays, the price drops wouldn't be as steep because of higher liquidity?

No, the reverse. I'm suggesting that liquidity may dry up even more quickly. But all of this is really just speculation - probably nobody really knows for sure.

 

[dcraig1]

The other thing to bear in mind is whether you broker may not survive a catastrophic market event.

Guaranteed stop loss may be all well and good, but what if the spread betting co cannot meet it's obligations?

Same is true of proper brokers as well. Beware of brokers offering futures margins well below those recommended by the exchange. Investigate the financial stability of a broker. Conservative risk management is a good thing.

 

[hart3000]

dcraig -- Thank you very much for your advice. Might be obvious to you but is very valuable for me. Now I understand better why it is so important to limit the risk (max regular loss) of each futures trade to less than 2.5% of portfolio.

In my setup, I am usually trading with a 20 DAX points stop loss. If that represents 2.5% of my capital, even a dramatic 500 points move will not wipe me out completely (unless I am overengaged by too many positions and recieve a margin call). Even a 500 points downfall would result in "only" 25 x 2.5% = 60% loss of capital and not all. Furthermore, as the market usually partly corrects extreme moves, one could likely sit it out (a couple of minutes, i.e.) and exit with a much lower loss than 60%.

In addition, any other positions would better not be correlated to tightly with the DAX position.

 

[Nancy08]

When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened.

“For tomorrow belongs to the people who prepare for it today”

 

[DSfutures]

Been trading for about 2 months on futures demo now, struggling to say the least, would anyone advise to switch to FX only? Is this easier? Anyone got any good recomendations for coaches?