A quiet announcement in November of last year looms large given the recent poor start for stocks in 2016. The New York Stock Exchange and NASDAQ are terminating stop-loss and good-til-canceled orders beginning Feb. 26, 2016. They are claiming risks occur from such orders during volatile trading. They are essentially saying that during busy markets, they do not have enough liquidity to support and successfully fill order that have been used to safeguard investors for DECADES. What’s the problem with this action? Well, Martian Armstrong of Armstrong Economics said it best when he wrote; “Cancelling these types (sic) of orders will only increase the risks for the average investor. The assumption has been that a flash crash takes place, these orders are elected, and then the market recovers. Complaints then materialize with hindsight, as always. Eliminating these types of orders will work in the opposite manner when there is a real decline, for they have the tendency to create a bank of sellers on any bounce and others are carried out bankrupt and unable to get out in a panic.” What happens right at the beginning of 2016? A very volatile first 4 sessions and the worst start-to-the-year in Dow Jones Industrial average history.
The Dow is down, as of Thursday’s closing price, over 5% in the first 4 trading days. As stated above, that is the worst start since data collection began in 1928. Anyone involved in the markets has seen the carnage and heard all the Television pundits (of which I am one, full disclosure) say “it’s going to be a volatile year”. What does this announcement have to do with Nadex products? Eliminating these orders will drive retail traders away and move them to futures or, if they are smart, to Nadex products. As you may or may not know, Nadex doesn’t offer these types of orders, but do you know it’s because they do not need to? The structure of the products already limits a trader’s risk. No panic, no traders jumping out of windows because they lost the family summer home in the Hamptons, just smart traders making controlled trades.
Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results