Scary Spread Fluctuation

[liberati]

I trend-trade and initiate bets with stop orders which can last from a few days to several weeks. Recently I bet long on Salamander Energy - a FTSE250 company.

In this instance I was at my computer and saw the spread widen from a decent 1.1 (with Capital Spreads) to a scary 10 points in the space of an hour. This triggered my stop-buy order and brought me into play with a bid price very near my stop level (2 x ATR). Out of curiosity, I double checked on IG at the same time and their spread was even worse!

It would be wise to avoid using automated stop buy orders on stock that is prone to this behaviour and was wondering:

Is there any way I can dig historically to ascertain if a share is prone to erratic intra-day spreads?

My idea would be (for stock with this characteristic) to enter those trades manually.

Thanks.

 

[wackypete2]

Just check daily volume. Salamander is trading at $275 us dollars with less than 13,000 shares traded so far. Stocks like that will fluctuate wildly all the time.

Peter

 

[HowardCohodas]

That's why I stick to index options spreads. I don't have the stomach for taking on large market gap risk.

 

[DionysusToast]

HC - you risk 40% of your account on a single trade which could gap you out overnight.

You have more apetite for risk than cookie monster has for sour dough chocolate chip.

 

[amit1986]

You have more apetite for risk than cookie monster has for sour dough chocolate chip.

or more appetite for risk than arabian has for fish fingers

 

[HowardCohodas]

HC - you risk 40% of your account on a single trade which could gap you out overnight.

You have more apetite for risk than cookie monster has for sour dough chocolate chip.

I was uncharacteristically brief because I was counting on you chiming in. Thanks for obliging me.

Keeping things in perspective, the 40% risk is for a black swan event. I know of few traders that would not be harmed equally severely, if not worse in such an event. All methods of stopping out are likely to fail in a black swan event. So someone that only risks a small percentage of his account on each trade, but has 10 to 20 trades in play is operating under the same conditions.

 

[DionysusToast]

HC - a losing trade is NOT a black swan event.

 

[HowardCohodas]

HC - you risk 40% of your account on a single trade which could gap you out overnight.

HC - a losing trade is NOT a black swan event.

You are correct.

However, you wrote, "risk 40%, "your account," and "single trade." I chose not to call you out on writing something that is not reflective of my strategy. I chose instead, to focus on the "risk 40%" and "your account" as I have frequently shown that that is the maximum risk to my account only in a black swan event.

 

[amit1986]

liberati, I fear that your thread may become an extension of HC's journal...the brawl continues here...

 

[liberati]

Thanks for those replies that address the posting.

The stock in question (Salamander) varies from 60,000 to 350,000 (ignoring peaks). The day in question which saw the spread range from 1.1 to 10+ saw a volume of just over 82,000.

May I ask what level of volume (daily shares traded) in your opinion would make these spread fluctuations acceptable?

For myself I would consider a 1-4 point spread acceptable.

Thankyou.

 

[wackypete2]

Another note...I believe you would be better off using a stockbroker rather than a spreadbet firm. I have never used a spreadbet firm so maybe a few members here can offer better advice on that.

Peter

 

[brettus]

I trend-trade and initiate bets with stop orders which can last from a few days to several weeks. Recently I bet long on Salamander Energy - a FTSE250 company.

In this instance I was at my computer and saw the spread widen from a decent 1.1 (with Capital Spreads) to a scary 10 points in the space of an hour. This triggered my stop-buy order and brought me into play with a bid price very near my stop level (2 x ATR). Out of curiosity, I double checked on IG at the same time and their spread was even worse!

It would be wise to avoid using automated stop buy orders on stock that is prone to this behaviour and was wondering:

Is there any way I can dig historically to ascertain if a share is prone to erratic intra-day spreads?

My idea would be (for stock with this characteristic) to enter those trades manually.

Thanks.

IG's spreads are just spread around the market spread. ETX are exactly the same. US stock spreads are wild.