Spikes

Running the stops

This is also the reason that you cannot (and will never be able to) see the resting stops in the market but only the resting limit orders. If you could see both and you noticed that stops outnumbered limit orders then it would be easy for a trader with enough buying/selling power (or an automated system) to run the stops. In this case we know that all that was required to run the stops was the execution of 1 sell order at 1094.75. This means that there were stop orders for at least 49 contracts at that price and only 49 limit orders. The 49th contract that couldn't execute at 1094.75 sold one tick lower at 1094.50 and this caused all the stops to be executed at this level and so on all the way down to 1089.00.

Where are stops held? It is my understanding that stops can be held in one of four places. If this is wrong then please could someone correct me . I am now talking specifically about trading the e-mini S&P. Those four places are:

• The CME order execution server at the exchange.
• The broker's server.
• The client's (trader's) computer.
• The client's (trader's) head. (The trader must physically click a button to execute an order at market to close his/her position.)

Let's for a moment assume that we do know where the stops are and that they are published by the exchange, in this case CME. So we can see all the stop orders that are sitting on the CME server but obviously not any of the stop orders from the other 3 sources which will obviously increase the number we see. I've created a hypothetical DOM/DOME screen live trade table below:

The time is 21:51:29 and the price of 1094.75 has not been touched yet. You are a trader watching the screen and you suddenly see that at every level from 1094.75 the stops either equal or outnumber the limit order at every level from 1094.75 down to 1089.00. All you need to do in order to create a cascade effect and run the stops is to execute a sell of 1 single contract at 1094.75 and then the 49 contracts that are stop triggers at that level will hit the other 48 bid at that level and the last one will cascade into the 1094.50 level and trigger those stops and so on.

You are a very small trader and only trade 1 contract so you put in a bid at 1089.25 (because the stops cease to outnumber the bids at 1089.00) and then you sell 1 contract at market (1094.75) and in one second you make 5.50 points. Perhaps you put in a 2 contract bid at 1089.25 because you "know" that the market is going to reverse to equilibrium because this is a stop run and not a fundamental shift in the market caused by a news event. So you make your 5.50 points on the way down and a number more points on the way up.

If a 1 contract trader could do this to the market with this sort of knowledge imagine what sort of chaos a big player could cause by running the stops. In my opinion, a 1 contract trade at market caused this move/spike although I can't believe that the trader that executed that 1 contract knew that there were that many stops that were going to hit the market as a result. I'm sure that he/she would have sold a few more contracts if he/she had known.

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