Rogue trades and Stop losses

[kenhetherington]

I have had another example of my broker (etrade) stopping me out at a big loss due to a rogue trade. This one was apparently at 8:01 am this morning, but I cannot find details of it on ADVFN. However they say it shows on Reuters.

I recently had another such example that took place at 11.14am. In both cases the trade was a one off way below the current price and the subsequent prices were at the pre rogue trade level.

My stop losses were not set too tight.

So my question is: Are there any brokers who don't whip you out of the market on a rogue trade which is NOT part of a trend, and which occurs momentarily in the market? It is interesting for me to note that last week there was also a rogue trade that hit my limit order. However that was not actioned and it would have been profitable. So the perception I have is that I am very vulnerable to any rogue trade that causes me loss whereas do not benefit from those that would be profitable.

What I would like is a broker who has a system in place that filters out rogue trade by only actioning them when they are part of a trend, or when there are several at the gapped down (or up) price.

Ken Hetherington

 

[A Dashing Blade]

. . . However they say it shows on Reuters . . . .

If you want to (PM?) the details, I confirm that if you want.

 

[kenhetherington]

Thanks.

Details: TATE stopped at 444.453 at 8:01:20

Ken

 

[ardhill]

Not quite the issue you are addressing but...

On Finspreads, and I assume some other spread betting companies, you can trade on the market price or on their quote.

I choose their quote as it usually smooths out these rougue quotes. If you get a 1 off spike, they usually ignore it with their quote, but will stop you out with a 'market price' trade.

 

[Glenn]

"but I cannot find details of it on ADVFN"

It's on the advfn TATE bar chart. Where are you looking ?
Glenn

 

[kenhetherington]

"but I cannot find details of it on ADVFN"

It's on the advfn TATE bar chart. Where are you looking ?
Glenn

The lowest price I can on the ADVFN intraday chart is 460. However I was looking at the list of individual trades on ADVFN from the opening today. And I was looking for ones around 444 at 8:01

Ken

 

[Glenn]

The chart I have on screen shows a dip to just below 444p in the first one minute bar.

www.advfn.com/cmn/chrt/chrt_wrap.phpepic=TATE&name=&type=2&sprd=1&size=2&period=a&freq=1&dat

Glenn

 

[kenhetherington]

Not quite the issue you are addressing but...

On Finspreads, and I assume some other spread betting companies, you can trade on the market price or on their quote.

I choose their quote as it usually smooths out these rougue quotes. If you get a 1 off spike, they usually ignore it with their quote, but will stop you out with a 'market price' trade.

That sounds to me like what I need to focus on. Whilst market prices have advantages, I do not want to sustain repeated losses due to spurious trades. I would be interested in hearing about the general experience of traders. Being taken out by a rogue price spike must be common for those using market quote prices.

Ken

 

[kenhetherington]

The chart I have on screen shows a dip to just below 444p in the first one minute bar.

www.advfn.com/cmn/chrt/chrt_wrap.phpepic=TATE&name=&type=2&sprd=1&size=2&period=a&freq=1&dat

Glenn

Thanks. For some reason I couldn't get the link to work, only reached the home page, but I eventually found it.

I accept that this spike occurred. So my focus is primarily, how to avoid it in future.

Ken

 

[A Dashing Blade]

PM on way Ken

 

[Glenn]

On Ftse100 stocks I have often seen a very wide spread at the open, irrespective of any trades going through. On advfn you can have the Spread shown on the chart.
If the MM's aren't sure what might hit them first thing, they widen the spread to put off the 'speculators'.
Whether the wide spread means that your stop gets hit I have no idea.
But looking at the Tate chart it does appear that a trade was made around 444p.
Could it have been a delayed trade ? How does E-trade handle those ?
More questions than answers I'm afraid.

Comdirect is not showing the same low. Their low figure is 452.5p.
Glenn

 

[ns1000]

From the chart it looks as though the trade is good, although a classic example of a spike. There are 1609 shares traded on SETS at 0801. From the time and sales, it's evident that this is because someone has hit the 455.5 bid in about 2000 shares, with a market order (there is a print at exactly the same time in about 600 shares at 455.5). It's a classic example of thin markets and ignoramus hitting a bid. Normally I'm fairly unsympathetic with stops, but this case this is one where some discretion really should have been used.

What level was your stop at, and what price did they fill you? As there's only one trade there, they can't claim that it has to be yours. You should have got a significant improvement... There's no argument about market makers making the bid, as it's a SETS stock, and within seven seconds of this trade, the bid was back up at 450. I doubt they could have executed within those seven seconds.

The problem with stops is that they can't be placed on the LSE, so you're inevitably reliant on the broker's efficiency. Sounds like they've been overzealous on this occasion though.

Good luck

Nick

 

[kenhetherington]

From the chart it looks as though the trade is good, although a classic example of a spike. There are 1609 shares traded on SETS at 0801. From the time and sales, it's evident that this is because someone has hit the 455.5 bid in about 2000 shares, with a market order (there is a print at exactly the same time in about 600 shares at 455.5). It's a classic example of thin markets and ignoramus hitting a bid. Normally I'm fairly unsympathetic with stops, but this case this is one where some discretion really should have been used.

What level was your stop at, and what price did they fill you? As there's only one trade there, they can't claim that it has to be yours. You should have got a significant improvement... There's no argument about market makers making the bid, as it's a SETS stock, and within seven seconds of this trade, the bid was back up at 450. I doubt they could have executed within those seven seconds.

The problem with stops is that they can't be placed on the LSE, so you're inevitably reliant on the broker's efficiency. Sounds like they've been overzealous on this occasion though.

Good luck

Nick

Details are:

Stop 460

token filled at 455.5
followed immediately by fills at 444.453 and 444

Ken

 

[ns1000]

Details are:

Stop 460

token filled at 455.5
followed immediately by fills at 444.453 and 444

Ken

Might be worth finding out how they filled you at 444.453. Although I can't see that reported. If they took it on their book, they should be able to prove that was the prevailing market price.

Would also be worth asking them how they justify best ex on this. The 444.453 is clearly not a SETS trade - presumably it was with a market maker. Why didn't they try to get your full size from the market maker rather than hitting an insubstantial SETS bid, then a market maker trade, then hitting SETS again. If it's not a market maker trade (should still be reported) where does the price come from?

I guess they're within the letter of the law if not the spirit. A stop order is essentially a market order, but I don't think this will override their best execution obligation. Hardly sensible trading... Probably worth taking further...

 

[kenhetherington]

Sorry I may have slightly misinterpreted the details I am seeing on their trading platform. Here is the exact position. Btw times are quoted in GMT.

09-May-05 07:01:19 CFD trade executed to Sell 66 TATE.L @ 455.5, cost 7.50 GBP, Value date 9-May-2005 by System User

09-May-05 07:01:19 Order 16880129: Order Executed partially to Sell 66 TATE.L @ 455.5 by System User

09-May-05 07:01:19 Order 16880129: Order Executed partially to Sell 1,609 TATE.L @ 444 by System User

09-May-05 07:01:19 Order 16880129: Accumulated CFD position, Sell 1,675 TATE.L @ 444.453 accumulated cost 7.50 GBP, Value date 9-May-2005 by System User

I think you can see why I am a tad confused. Overall I think they sold at an average price of 444.453 but in practice sold a token at 455.5 and the rest at 444.

I agree there seems to be a degree of overzealousness here, and the system appears to have scant regard for the interests of the client, given that rogue trades are common.

Overall my desire is to avoid this in the future as far as I can, and I doubt if I will be using this platform much longer if I can find a broker that doesnt follow price spikes to the second to disadvantage a clients open position.

Ken

 

[ns1000]

Sorry I may have slightly misinterpreted the details I am seeing on their trading platform. Here is the exact position. Btw times are quoted in GMT.

09-May-05 07:01:19 CFD trade executed to Sell 66 TATE.L @ 455.5, cost 7.50 GBP, Value date 9-May-2005 by System User

09-May-05 07:01:19 Order 16880129: Order Executed partially to Sell 66 TATE.L @ 455.5 by System User

09-May-05 07:01:19 Order 16880129: Order Executed partially to Sell 1,609 TATE.L @ 444 by System User

09-May-05 07:01:19 Order 16880129: Accumulated CFD position, Sell 1,675 TATE.L @ 444.453 accumulated cost 7.50 GBP, Value date 9-May-2005 by System User

I think you can see why I am a tad confused. Overall I think they sold at an average price of 444.453 but in practice sold a token at 455.5 and the rest at 444.

I agree there seems to be a degree of overzealousness here, and the system appears to have scant regard for the interests of the client, given that rogue trades are common.

Overall my desire is to avoid this in the future as far as I can, and I doubt if I will be using this platform much longer if I can find a broker that doesn't follow price spikes to the second to disadvantage a clients open position.

Ken

That makes more sense. What seems really unfortunate here is that by rigidly interpreting the definition of a stop order, they've traded for you at a crap price without benefiting themselves. A stop order is a market order so in this respect they're correct, but anyone with a brain might have traded your stop more sensibly. It was obviously a thin market, amd they've created a new low needlessly.

That said, as it's a CFD, there's little comeback - no duty of best execution etc. You might think over the following couple of points -

i) Do you want to leave your stops with your broker at all? If you're using direct access, your system may well support some sort of alerts. This is exactly what your broker will do. Might it be worth taking the execution risk on yourself to exercise some sort of discretion in similar markets.

ii) Do you want to use a CFD provider who is bound to trade in the underlying market? Sometimes it might be better to use one who will run a book. In this case, the size wasn't that large; a market-making CFD provider would most likely have taken your stop on its book at around 455. There are pitfalls here of course - is their price always the best at which to trade? A dual capacity broker (one who offers direct access and will make a price off their book) may be occasionally useful; you certainly wouldn't lose.

Sorry not to be more positive; it's a bad fill but to be hard about it, I can't see you can actually do anything about it. They'll be hard-nosed as technically they've acted ok and any compensation would directly affect their bottom line. Good luck anyway,

Nick

 

[kenhetherington]

That makes more sense. What seems really unfortunate here is that by rigidly interpreting the definition of a stop order, they've traded for you at a crap price without benefiting themselves. A stop order is a market order so in this respect they're correct, but anyone with a brain might have traded your stop more sensibly. It was obviously a thin market, amd they've created a new low needlessly.

That said, as it's a CFD, there's little comeback - no duty of best execution etc. You might think over the following couple of points -

i) Do you want to leave your stops with your broker at all? If you're using direct access, your system may well support some sort of alerts. This is exactly what your broker will do. Might it be worth taking the execution risk on yourself to exercise some sort of discretion in similar markets.

ii) Do you want to use a CFD provider who is bound to trade in the underlying market? Sometimes it might be better to use one who will run a book. In this case, the size wasn't that large; a market-making CFD provider would most likely have taken your stop on its book at around 455. There are pitfalls here of course - is their price always the best at which to trade? A dual capacity broker (one who offers direct access and will make a price off their book) may be occasionally useful; you certainly wouldn't lose.

Sorry not to be more positive; it's a bad fill but to be hard about it, I can't see you can actually do anything about it. They'll be hard-nosed as technically they've acted ok and any compensation would directly affect their bottom line. Good luck anyway,

Nick

Thanks Nick. don't apologise for not "being more positive". I found your reply extremely helpful. It is not a mega issue for me - the size of the loss, though I am very annoyed that this has happened. But my overall focus is learning and the future.

I have learnt that the risks of having such a mechanical and rigid system vastly outweigh all other issues as far as I am concerned. I have seen frequently spikes in stocks I have been watching and suffered a similar event a few weeks back at 11.14am. These turn a situation of a trade that can be or is profitable being turned into an instant loss by some ham fisted person putting in the wrong price is something that I will avoid at all costs. It is like shopping in a supermarket and saving a few quid but every once in a while being robbed of several hundred pounds by some predictable but random event.

Your suggestions are both helpful and positive. Not using automatic stops especially in the first 15 mins of each day, and in the longterm using a broker that does not trade direct market prices but has built in ways of responding appropriatately to the market. I understand of course there is no perfect answer, but I certainly don't want to take big hits at random. I am learning the ropes about trading and I like to think I am reasonably diligent how I approach it. But these random 'brainless' acts and responses in kind, are something else.

So I have learnt a valuable lesson. ETrade may have stuck to the letter of the rules, but they have just lost a client. Ultimately the broker has to satisfy customer need or lose the customer. In this case the need is to deal sensibly with a common event - rogue trades.

Thanks again

Ken

 

[kenhetherington]

On Ftse100 stocks I have often seen a very wide spread at the open, irrespective of any trades going through. On advfn you can have the Spread shown on the chart.
If the MM's aren't sure what might hit them first thing, they widen the spread to put off the 'speculators'.
Whether the wide spread means that your stop gets hit I have no idea.
But looking at the Tate chart it does appear that a trade was made around 444p.
Could it have been a delayed trade ? How does E-trade handle those ?
More questions than answers I'm afraid.

Comdirect is not showing the same low. Their low figure is 452.5p.
Glenn

I was interested in the comment of Comdirect in Traders magazine, in which they said they were looking at stop losses and in particular not actioning a stop loss unless the underlying price was either part of a trend or the new lower price persisted. As far as I am aware Comdirect don't offer CFD's but all of this has spurred me to find ways of avoiding this sort of thing again.

Ken

 

[kenhetherington]

Here is a reply I received from City Index giving their attitude to executing stops triggered by rogue trades.

"When stop losses are triggered they do not go straight into the database but are first checked by a dealer.
This is to ensure that they are not triggered by rogue trades as you descibe below.

The dealer will take into account the market bid / offer spread and actual trades taking place in market at the time.

This is especially important at the beginning of the day when spreads are wide and trading can be thin.

If the dealer is of the opinion that the stop should not be triggered it is then returned back to the stop loss database and no trade is booked on the account."

This seems to me to solve the problems I have been experiencing.

Ken

 

[Glenn]

Hmm. Just pulled off the time and sales from Comdirect

08:01:44 460.50 3,000
08:01:29 450.00 2,000
08:01:19 444.00 1,609
08:01:19 455.50 66
08:01:11 459.00 4,970
08:01:11 459.00 4,100
08:01:10 459.00 8,946
08:01:08 459.00 11,054
08:01:05 458.82 5,000
08:00:43 464.00 0
08:00:43 464.00 56,229


Looks like someone hit the bid for real when the spread was wide.
If so, then a trade is a trade.
Glenn