Yahoo! Groups : telechrt2005Users
Interesting discussion thread on E-trade's trailing stops going off on bad quotes and not on actual trades at those prices.
An extract of the text in case you need to sign up for the group to read the posts:
I have been in discussion with E*trade regarding their implementation of
“Trailing stops”. Needless to say we are in disagreement. Seems simple to me
my position as you will read below is that Trailing stops should not be
executed by an erroneous bid. In this case, the trailing stop was more than
$2 below the currently trading prices. I had 2 failures in 3 days. Below is
my last email to E*trade.
...
This is the second failure of the trailing stop order in 3 trading days. I
have now lost total confidence that trailing stop orders are working
correctly. I, unfortunately, do not have access to all the history of the
bid/ask. It is obviously not working off the ”Best” bid/ask or it would not
have executed a trade that had a trailing stop in the 26.60 area and then
sold for 28.50. There is no way this trade should have been executed. I don’
t believe with a clear consciences tell me this is right.
If you trailing stop really works this way then it is useless to serious
traders.
This has now happened twice at market open. We all know that the bid/ask is
spread out during non-market hours and are not realistic. This should not
cause the trade to execute. Somewhere in the system there is a problem that
is causing trades to be trigger when no trading has actually taken place at
that price.
I understand the system is based off the bid/ask and you hold the orders in
your system and convert them to market order based off the bid/ask. Somehow
you have to be able to determine if the bid/ask is really valid. The way you
system is now any exchange that is late adjusting its overnight bid/ask will
cause trades to be triggered and that is not right. Even worse is it opens
your customers up to those that would take advantage by knowing they can
trigger orders just by putting in a bogus bid. Talk about being a setting
duck. Perhaps, you should trigger the trailing stops off the time & sales
and an actual trade.
Trailing stops should work no different than hard stops. The only difference
being who holds the orders not what causes the order to execute. Perhaps,
you need to change the trailing stop to trigger off an actual trade the way
normal stops do on the NYSE.
And a few posts in reply to this orignal message.
I was looking forward to some of E-Trade's features when they finish their merger with TD Waterhouse... now I am not so sure...
