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Comment by VLM | Hacker News Reader

The linked article interpretation is really good as a long format, but as a very short format in EE-ish math-ish terms HN readers will likely understand, market prices are not fractal and are occasionally very noisy on small scale.

They aren't fractal in that they are strongly scale sensitive, and at a small scale over a short enough time period on an unusual day you're basically looking at noise.

As per innumerable statistical analysis given enough noise samples all possible values (of price) are eventually, however temporarily, touched.

"Lastly, if we’re concerned about protecting individual investors, we need better education and controls around the most dangerous tool in the ETF investor’s toolbox: the market order."

Seriously, those things should just be banned from retail investment and retail investment education.

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> Seriously, those things should just be banned from retail investment and retail investment education.

What? That's absurd, you want to ban "buy/sell now" at the market price? There is no justification for wanting to ban the most basic and most ordinary transaction type.

Thing is, that's rarely someone's intent. You wouldn't sell all your stocks for a penny if there were no bids in the market. That's why we have things like circuit breakers and price limits.

>Thing is, that's rarely someone's intent.

I'd argue fill my order "now" is pretty much aways everyone's intent.

It's not though. You and I may understand the complexity that is actually hidden in a market order and what it means for our execution risk but for many many participants it is closer to "hmmmm, goog is at $630.36? I'd take some of that. Market Order sent. I got filled at 630.45? WTF the markets are rigged, HFTs are front running me".

So I wouldn't argue for banning market orders, but I'd probably stop using them as the defaults for people. Making people set limit order prices seems like it would encourage more people to understand the market dynamics.

Then they'd just complain about partial fills and failed orders and still blame HFT, I don't see that changing the default would solve anything at all.

I suspect folks will blame HFT for ever, that isn't really my point. Having to think about price limits and partial fills is good for anyone who is attempting to make a transaction as it removes an abstraction that is dangerous in many cases.

I understand your point, I just don't think that's what would happen. The aren't going to think about those things anymore than they think about slippage with a market order. Whatever you give them, it won't match their ideal of fill me now at X price with no errors and they're going to complain either way and they're not going to think about it beforehand regardless of the default.

Do people really care about a 0.04% difference in price on stock orders? When I make a market order, I'm investing, not trading. As long as my order is within a percentage point of the quote I got when I opened the trade window, I really don't care. My intention is to make tens or hundreds of percentage points on my investment over years.

Were I trading, I might think differently, but traders should be expected to know about limit orders.

I picked those numbers to be a bit ridiculous. That said, even as a long term buy and hold participant there is some number where you don't think your investment choice makes sense.

If you encode that value into your order you are protected from flashes and guaranteed to get your order for up to that price (assuming the liquidity exists to support your order).

That's not what a market order does. It buy/sells at an unknowable future price.

I trade, I know exactly what a market order is.

It buys at the current market price, which during the filling of the oder may slip as liquidity slips; that's the entire point, fill this order now no matter what. To not have such an order means having your entries and exits fail or partially fill which means you'll just have to reinvent the market order yourself to continue pushing through your order. To ban a market order is to tell me I'm not allowed to enter/exit a position in a single order, that's non-sense. If you don't want slippage, don't use a market order but that comes with the side effect of failed/partially filled orders.

>To ban a market order is to tell me I'm not allowed to enter/exit a position in a single order, that's non-sense.

You could carry on trading as you currently are. If a stock is trading $100/$100.1 and you want to buy it ('now' as you say), then just set your limit to $1000.

Of course, you will have no one to blame but yourself if, during the ~50 milliseconds it takes for the order to reach the exchange, the market makers have switched off and you end up crossing a massive spread and buying the only available offer at $600 or something. An incredibly unlikely scenario, but it can happen.

So I imagine you'll set your limit to something sensible, like $101. It'll still get filled 'now' 99.9999% of the time. But you won't be taking the risk of doing something epically stupid. There, that wasn't so hard now was it?

> So I imagine you'll set your limit to something sensible, like $101. It'll still get filled 'now' 99.9999% of the time. But you won't be taking the risk of doing something epically stupid.

Your scenario doesn't handle the case a market order does, i.e. close my position now. In a fast moving market, using limit orders for stops or exits is just going to result in partial fills or failed orders. If I want out, I want out, I don't only want out if I lose between X and Y, I want out period; that's what market orders are for, for that convenience, you accept slippage as a reality.

> There, that wasn't so hard now was it?

No, it's easy to do things that don't work, I can pump my order into /dev/null, that's easy too, and it's just as useful as a limit order for stops.

>Your scenario doesn't handle the case a market order does, i.e. close my position now.

I covered that. If you really, truly, want to sell at any price(and I can't imagine why, that is terrible trading), then you set your limit to zero.

That's all a market order is - a special case of a marketable limit order (immediate or cancel/fill and kill/etc) with the limit set to zero (in the case of a sell) or infinity (in the case of buy).

Banning vanilla market orders just forces people to acknowledge that fact, which is a good thing.

> I covered that. If you really, truly, want to sell at any price(and I can't imagine why, that is terrible trading), then you set your limit to zero.

Perhaps to avoid a margin call; your imagination is limited, you seem to forget you also have to buy/sell to exit a position when holding on is not an option. Terrible trading is holding on until you get margin called; when your risk management says get out, you get out. A stop loss isn't a stop loss if it can fail to fill or only get partially filled, a market order is exactly what one desires in a stop loss.

> That's all a market order is - a special case of a marketable limit order (immediate or cancel/fill and kill/etc) with the limit set to zero (in the case of a sell) or infinity (in the case of buy).

Yes, and thus no need to ban it.

> Banning vanilla market orders just forces people to acknowledge that fact, which is a good thing.

You can't force people to acknowledge details they don't care to know about. Ban this, ban that; it's all non-sense from people who think they can force the ignorant to learn, you can't. Banning market orders achieves nothing.

Technically, it's unknowable. Most times, you can expect it to be about what it was 5 seconds before. Out of the total number of regular trading hours in the year, in how many seconds are major ETFs transacting outside 1% above or below a quote from 5 seconds earlier? How about when you exclude periods in which the market is volatile in a newsworthy way?

"Seriously, those things should just be banned from retail investment and retail investment education."

The problem is we aren't just talking about ETFs...there were similar effects happening in individual stocks where they were down much, much greater than this ETF. We should just ban stocks for retail investors?

What's wrong with people learning about things before they throw money into something they don't understand? Banning this and banning that blindly just makes people more dependent on someone else doing their homework for them. People need to take responsibility for their own actions and read up on stuff before dumping money into something.

He meant ban market orders rather than ban ETFs.

I think you're right but people need to learn before they do stuff....you can't walk around life being dependent on regulations protecting you. I can't even remember the last time I placed a market order.

Most people are thoroughly dependent on regulations - they're what let you e.g. walk into an unknown shop and buy food there and be confident it won't poison you.

Sure, it would be best if every retail investor learnt the market before participating - but that doesn't make it bad to take steps to protect those who don't (assuming those steps aren't particularly costly). If you can't remember the last time you placed a market order, surely it would be no big loss to you if they were banned entirely?

I'm not saying get RID of all regulations but clearly there's a limit to how much regulation....if someone can't be bothered to google "market order vs limit order" then they deserve to get their a handed to them when they decide to panic sell on one of the worst times to sell. They clearly aren't cut out for this if they are panic selling in the first place. I made money during this time partly b/c I took 2 minutes out of my day many, many years ago and learned the difference between a market and a limit order. Literally, 2 minutes! Next thing you're gonna tell me is that if someone sells at a loss (nevermind it being a "panic" or not) they should be compensated by the gains I made from their stupidity.

Let's say a regulation was passed that didn't allow market orders. Retail investors would feel "safer" b/c they think the government is protecting them. They will then be more inclined to not bother researching the companies they own, etc because, well, the government has got their back. Why not dump all our money into stocks if the government is gonna protect us, right? The problem is that there are a million ways to lose money in investing....chief among them is not spending time to do the research on the companies in which you are invested.

The best protection is to be well-informed of what is going on. Certainly, we can't know everything (such as how our food was prepared, quality of it, etc) but every investor putting money into stocks should know something as basic as a market order vs a limit order....that is NOT too much to ask.

> Let's say a regulation was passed that didn't allow market orders. Retail investors would feel "safer" b/c they think the government is protecting them. They will then be more inclined to not bother researching the companies they own, etc because, well, the government has got their back. Why not dump all our money into stocks if the government is gonna protect us, right?

I think you're greatly overestimating this effect. The government already regulates the stock market a lot. One more regulation isn't going to make retail investors suddenly start taking much bigger risks.

Not saying it will make a HUGE change in and of itself but it does compound

> Retail investors would feel "safer" b/c they think the government is protecting them. They will then be more inclined to not bother researching the companies they own, etc because, well, the government has got their back.

Why would this be the case?

A regulation prohibiting market orders doesn't even in theory serve to protect against poor-quality securities that will decline in value, it protects against poor quality market price information and/or order execution that results in an order being executed at a substantially different price than expected.

It might reduce the degree to which retail investors research information on order execution between different entities through which they might trade securities, but the jump from there to it reducing the degree to which they research the underlying securities seems unwarranted (if anything, it would seem more likely to focus their research more on the securities themselves.)

But, the thing is, its not like retail investors are bothering to research and understand the issues it would address now much at all, so its not like it would actually change anything except the degree to which they get bitten by them. (And, conversely, the degree to which counterparties benefit from them getting bitten by them.)

> As per innumerable statistical analysis given enough noise samples all possible values (of price) are eventually, however temporarily, touched.

I don't care how small a timescale you're looking at, the price of GOOG doesn't flit down to 0.01 or up to 1,000,000.00.

Quotes for GOOG @ 0.01 http://www.nanex.net/aqck2/3912.html

Did anything trade there? Was it busted?

... with zero volume.

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