May 6, 2010 mid-day stock market events
May 9, 2010
Well, unless you’ve been under a rock since last Thursday afternoon, you’ve heard more than you ever wanted to hear from the talking heads, like CNBC, all vying for their exclusive angle to make headlines and sell ads while over analyzing and just pure speculation as to what may have caused the problems leading to the largest intraday drop in the Dow since time began.
And, to their credit the folks managing the exchanges have clearly come up with what is most likely the reason – people placed market orders and due to the NYSE stopping trading on a few equities for about 90 seconds during the trading day, these orders were filled on secondary exchanges, where some bright person just happened to have placed an open until canceled order at the hilarious rates of $.01 (ONE CENT) or even less.
Folks, these are VALID orders. Given how the exchanges work, it is proper and a normal way of business for a person to enter a bid order at whatever price they want to pay. It’s called CAPITALISM, something I’m surprised that dolt Larry Kudlow hasn’t dived in on. It’s offering what the market will pay at that time for whatever is being offered.
The REAL problem is that some neophyte minded stockholder actually was stupid enough to enter a trade ‘at the market’. This means, that this person is perfectly willing and able to accept, WHATEVER the market price is determined to be, at the time of the transaction. And, by definition, the seller has no control over setting this price. They basically accept what’s given them. Granted, they’re presuming that it’s not going to be much different than the last price they have quoted to them by whatever means. But in theory, the price can be anything. And, on Thursday, we saw A LOT of that happening.
Now, the exchange folks are trying to invalidate those sales. Frankly, I say HORSESHIT to that. If you want to complain to anyone, complain to the NYSE for unilaterally halting trading on a few stocks and thinking the world would follow them. Duh, I guess the “Big Board” doesn’t have the respect it once had anymore in the current time of computers making decisions faster than humans do.
These were and are VALID trades. Granted they were anomalous in their outcome.
Do we need ‘speed bumps’ or to be able to slow down trading based on some predetermined conditions? NO.
Do we need to dummy down the servers that do such an excellent job of doing exactly what they’re told to do in handling all the transactions coming down the pipeline? NO.
What we need to do is educate the investor. UNFORTUNATELY, most investors haven’t been educated and think all they have to do is subscribe to IBD, the Journal, watch turkeys like Cramer, subscribe to Gorilla or some other service, and presto, they’ll get rich. Reality is a much different story. Investors NEED to be educated to be able to make their own (and many times much better) investor decisions and how to use the tools and methods of the market. It really is that simple.
If you want to insure you get a certain price range for you sale, don’t issue a ‘market order’! Instead, issue a limit order.
Ignorance of the law is no excuse – ask any cop. Ignorance of how the market works is no excuse for having valid orders canceled. And they shouldn’t be!
I’m Don Rima, and that’s the view From Where I Stand.
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Hi Don,
My advisor suggested I put stop loss orders to limit my downside. All these were triggered as market orders and some got executed at $0.10 a shares.
They purposefully avoided stop loss limit orders, which in this case would not have saved me either. A stop loss limit order would simply have failed to sell on the way down only to sell on the way back up.
I can’t see (now) why anyone would put in a stop loss order, can you?
Susie Q in Charlottesville VA
======
Susie
All a stop loss does is trigger an event. Once the event is triggered there’s no guarantee that you’ll get out at that price or anywhere near it.
There are times when the market moves incredibly fast in a direction and there’s so much volume in a very short period of time that you don’t get stopped out at the price you want but rather at market price at the time of the transaction.