NYSE killing Stop orders as of February 26

The New York Stock Exchange is putting an end to Stop orders, as well as to GTC (good-til-canceled) orders.

The NYSE announced that it will stop taking Stop (sorry for the pun 🙂 ) and GTC orders as of February 26, 2016. All existing Stop and GTC orders on NYSE’s books will also be canceled.

NYSEA Stop order allows an investor to (in theory) protect from a rapid drop or rise in an instrument’s price, becoming a ‘market’ order once a stock exceeds a particular (Stop) price. Say I bought Apple shares at $115, but don’t want to stomach too big a loss if the shares fall below $110, then I’ll enter a Stop $110 Sell order. As long as Apple remains above $110 the order remains inactive. If however the stock does fall to $110 or below then the Stop order immediately become active as a ‘Market Sell’ order, and the shares will be sold right away at the best available price, like any Market order.

(There are other variations of Stop orders, but we won’t review them all here).

Forex traders, especially those who utilize a lot of leverage, are frequent users of Stop orders to either protect from losses or lock in gains as markets move fast in one direction or another. They also allow a trader to ‘go away’, and know that his or her position is somewhat protected.

The NYSE’s rationale for putting a stop to Stop orders?

Well sometimes they can do more harm than good, especially in very volatile markets.

An example given by the NYSE was trading activity on August 24 of this year, a day which saw a very rapid drop and then an almost equally rapid recovery in the stock market. Many traders were ‘stopped out’ on the way down, but actually received a much worse price than the ‘Stop’ price. When many Stops are triggered all at the same time, an effective run-on-the-market happens and dropping share prices get pushed down even more. And fast.

The alternative to using Stop orders?

Investors and traders are simply going to have to pay closer attention to their positions, and enter orders in real time instead of relying on in-place stops.

This might not mark the end to all Stop orders on NYSE stocks. It is possible that some brokers might still accept certain Stop orders on NYSE listed shares, they just will need to cross them internally without handing those orders over to the NYSE.

Do you believe that this is a good idea? Or is the NYSE going to do more harm than good, especially to retail traders who – unlike institutional traders – typically do not have their own sophisticated market tracking tools in place? Let us know below.

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