Personal Finance & Money Asked on July 6, 2021
Nasdaq has just observed (not sure if it is finished yet) a major rotation that led to many stocks to fall (especially tech and "green" ones). As an eToro user, I have noticed that during this period for some positions they did not allow a StopLoss (SL) less than 20%.
This prevented me to reduce the loss for wrongly identifying a resistance (e.g. automatically sell at about -5% instead of about -20%) and led to losses bigger than incurred if I would have been allowed to place the SL the way I wanted.
I have reached out to my account manager and the answer was that this is their policy for some stocks. Also talked to a friend and saw a few presentations about the SL, and limiting the value for SL does not seem to have any sense, at least from the trader’s perspective. Basically, the trader should have the freedom to set the SL to whatever value they think fits their strategy.
I am still clueless about the rationale of placing such a restriction. It clearly leads to more loss in periods of big rotations or crisis for some trading strategies.
Question: What is the purpose of placing a minimum value for Stop Loss for some positions (no shorting, no leverage)?
Question: What is the purpose of placing a minimum value for Stop Loss for some positions (no shorting, no leverage)?
For what it's worth. One guess is:
You know when you place a stop, in a fast/thin market it will blow through the stop and you will get an incredibly bad price. Right?
Well for inexperienced users, this is incredibly confusing. (Indeed there are a zillion questions on this site, where folks don't understand price, bids, etc.)
Thus, they simply don't want users to have that confusion. (It incredibly increases support costs when you get confusion from users like this.)
Remember too that eToro is a scam for new "traders" to get them in. So the last thing they want is people phoning up complaining "why wasn't it sold at 50."
So to avoid having a huge number of customer complaints, they just turn off stops. In a fast market, users just have to "take it or leave it" with a market order - slashing their support costs.
(A handful of sophisticated users - such as our OP here - would then complain that the feature is missing. But scam sites like this don't care about sophisticated users, they just want the mass of folks who "try their hand" at trading with a thousand bucks, lose it all, and are not seen again.)
This would be my guess why they turn off the feature in fast markets.
Answered by Fattie on July 6, 2021
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