I've been robbed

[Dustin]

Quote from Ghost of Cutten:

Yes, we all agree that trade busts are better than nothing, due to fat finger risk. But cmon - we just had a crash driven almost entirely by illiquidity and people stepping away from the market, and you are saying it's not relevant to discuss how trade bust rules contributed to that, or why they need to be reformed?

No, I'm not saying that at all. I agree that the current trade bust rules are not the best. They should have wider bust criteria which would entice more liq providers to rest orders which is really what the market needs. They also need to have clearer guidelines about when they will and won't bust (news, rumors, etc), and always adhere to them.

My argument is against the guys saying that no trades should ever bust, which is a ridiculous statement imo.

 

[hippie]

Quote from Ghost of Cutten:

Yes, we all agree that trade busts are better than nothing, due to fat finger risk. But cmon - we just had a crash driven almost entirely by illiquidity and people stepping away from the market, and you are saying it's not relevant to discuss how trade bust rules contributed to that, or why they need to be reformed? Trade busts helped cause the crash last week, and while they exist they will continue to make it impossible or insanely risky to provide liquidity in a crash. If you are happy with that, then just hope you never get stuck long on size when a crash happens and you need to get out, but no traders will place bids because of the "heads I lose, tails they win" risk that trade busts introduce.

Big banks gets "fat finger" bust protection? Who else gets it?

 

[hippie]

Quote from Ghost of Cutten:

Why shouldn't he sell on an exchange that has rules that will bust the trade?

Besides, you are totally missing the point, which is to discuss what is the optimal way to handle "ridiculous" trade prices - whether arising from trade entry errors, computer malfunction, unusual loss of liquidity in the market, or other factors. The current method is trade busts, which has numerous flaws which have been repeatedly raised on this thread. An alternative is trade adjustments, which have numerous benefits compared to trade busts, as discussed repeatedly on this thread.

So, which method do you think is better, and why? Do you have any answers to the flaws of trade busts? Do you have any response to the benefits of trade adjustments? If so, then post them. If not, then kindly do us a favour and stop trolling this thread with pedantic off-topic bullshit.

Perhaps a stop order type with a range can be used. I don't know of any broker that offer such a service.

For example, I long a stock at $100. I have a stop order of $10-30. When stock drop $90, stopped is triggered instantantly. However, this stop is limited to no more than $30 loss, if the stop can't executed before it drops to $70, stop doesn't get executed.

Then there is a decision if to execute the stop order when price rises about $70 again.

 

[Pension_Admin]

Quote from Dustin:

No, I'm not saying that at all. I agree that the current trade bust rules are not the best. They should have wider bust criteria which would entice more liq providers to rest orders which is really what the market needs. They also need to have clearer guidelines about when they will and won't bust (news, rumors, etc), and always adhere to them.

My argument is against the guys saying that no trades should ever bust, which is a ridiculous statement imo.

The question is, how do you ensure the traders follow the guideline? Also, how do you stop someone from exploiting loophole in the guideline? In a perfect world where everyone follow the rules, busting trade should be fine, but we are not living in that world.

Also, just like everything else, busting trade is not free. It will cost everyone.

 

[Occam]

Quote from Ghost of Cutten:

The thing is, on 9/11 no one had accurate information. It was actually better to be trading remotely as you had no risk of your skyscraper being blown up or being forced to evacuate, and your ISP was less likely to go down. On other occasions, any experienced trader will know that beyond a certain % move, either its a fat finger or some news is out. That lets you know not to take too much risk, but it still doesn't help you make markets. Effectively you are limited to going up to 100% long and then just sitting on it. You can't buy down 20% and sell out down 15%, then buy down 30% and sell out down 25% i.e. you can't make markets or daytrade, you can only take one shot and hope it works and doesn't get busted. Or you can just sit out and do nothing, as most market makers did last week. Everyone is complaining about the lack of liquidity during that crash, without seeming to understand that trade busts make it impossible for market makers or traders to safely provide that liquidity.

I was already familiar with the trade bust rules before 9/11, and did trade accordingly e.g. I didn't use any leverage, so I could afford to sit on my positions (but still had the risk of things getting worse and closing down 30%+). However, it was frustrating not being able to make markets and trade in and out, narrowing the gigantic (5-10%+ at times) big offer spreads, and being unable to provide liquidity to panicked investors who were desperately trying to hedge their exposure. Thanks to stupid trade bust rules, and prior dumb trade bust decisions by Eurex and other European markets, traders like myself couldn't do our jobs and end-users couldn't hedge. That is the ultimate result of this policy, which the krazycarls, redinks, and dustins on here don't seem to comprehend. I hope they are fortunate enough to never need to hedge during a genuine market crash, and don't have to curse some exchange bureaucrats who have never traded in their life for making this impossible, when a clearly superior, fairer, and less risky alternative has been staring them in the face for a decade or more.

Interesting story, Ghost of Cutten, thanks. The difficulty in guessing the bustability of a trade a priori (regardless of how "well defined" the rules are ) might also have contributed to a couple of the really high freq shops pulling out of the market on May 6 -- very easy to go bankrupt on bad busts the exit trade of which is not busted, as the profit margins for these shops are razor thin (I'm guessing ).

Unless the bustability of a trade (that is, whether a requesting party of either or both sides can, upon request, bust it with total certainty) is knowable using only information available before the trade, it's always going to be ambiguous and contribute to the reduction of liquidity at the times it's needed the most.

Things have improved a lot in recent years with the "harmonization" of the guidelines across exchanges; my hope is that whatever new rules they come up with in response to recent events will improve things even more.