How fast can a stock fall?

Hey,

how fast can a price fall in case of bankruptcy, or other extraordinary circumstances? Can the stock price fall to zero over night? Differently asked, how fast can i usually expect to get out when I use a stop loss? Nobody will propably buy these stocks, after such news. Will I be able to sell them at all? Any opinions/experiences?

Greetings
-mike

Faster and farther than a retail traders account can stay solvent. They have waaaaaay more $$$ than retail and can drive PA down in the blink of an eye.

Always trade with a SL for this reason. If you lose all your capital waiting for them to bring the price back you will not be in the game very long. JMO

Good luck in your trading.

DM

Minutes is all it takes for a monumental fall in case of a bankruptcy.

Thanks guys. But are we talking about drops like 20-30%, or total losses/100% drops? To this date, I couldnt find a stock that had fallen so fast that you weren't able to sell it at least for 40-50% loss. Even in specific stocks after 9-11 or lehman, enron, .... in every of those stocks you would have lost much, but not all (usually you could have exited in the worst case after a 40% drop.

you are forgetting that one collapsing in blink of an eye are purged from databases. So your testing stat I wrong.

There was a stock in AU, insurance, that traded at 0 for a moment during GFC. If you trade cfd no insurance. So stop is no solution.

These spikes are conveniently removed after a while.

If you have 10,000 stock stop at 7.25 and there is only 30 stock bid at 7.00 and next bid at 0.01, you can calculate average price you get

With stocks, the risk is that an "extraordinary circumstance" can happen overnight, causing a huge gap down. A stop loss won't protect you against that - your stop loss will be filled at the market opening price, whatever that is.

If an "extraordinary circumstance" happens during market hours, your stop should protect you, but you may be slipped, depending on the liquidity of the stock. However sometimes the stock will be "halted", and you won't be able to get out of the position until the halt is removed. In this case your stop won't protect you, because it'll be filled at the opening price after the halt is removed.

In general, small caps stocks,have the greatest risk of a large move down on an unexpected event e.g. stock dilution, uncovered fraud, drug trial/approval failures, penny stock manipulation etc etc. Drops around 70-80% aren't uncommon.

Larger cap stock generally don't drop as much. For example, bad news for Apple or Bank of America, will rarely see their price gap down by more than 5% overnight.

With larger cap stocks you can hedge a position using options or futures. Small cap stocks don't have options, and are less correlated to the general market, so effective hedging is not really possible.

Very good info from SM02. Like.

So what's the conclusion, it's better and safer to focus on large cap stocks, since the chance of going zero are quite minimal?

The stock price have no limit in case of bankruptcy. That's why bankruptcy is the biggest risk faced by stocks.

Hello,

Speaking of how fast a stock can fall, I would like to share with you my view on the S&P 500 index as I think it's gonna fall soon so I am preparing to short it. I know is crazy to think at shorting S&P 500 in this macroeconomic environment with the taper off the table but I think S&P 500 will fall anyway, taper or no taper. I made a long analyze backed with some charts and I don't want to bore anyone here but if someone is interested can visit my blog: http://www.forex-galaxy.com/2013/10/...-in-s-500.html

Does anyone have a different opinion?

I think any word is useless. I leave you to draw the conclusions by yourself:

Attached Image (click to enlarge)

Faster than you can say Oy Vey!

It depends upon the circumstances of the stocks. A stock may even fall more than expectation with blink of eye.

Here is a sample of the kind if day that gets your attention..... and this is what happens at the open.... not during the day of the trade.

http://screencast.com/t/nPSSqpvvcf

This was only about a 3 dollar gap.... I have seen much worse, like 45 dollar down gaps...
These are usually the result of a bad earnings announcement or a stock split.

If you want to trade stocks look into the futures indices instead of individual stocks.... better liquidity, lower overall casts of trading, extremely tight spreads, usually 1/4 tick and commissions are very small.

Another interesting factor to introduce, has been with the high frequency traders, which can lead to a flash crash. Does anyone remember what happened in 2010 to the indexes?? This new technological advances can lead to some disadvantages, in another flash crash, you can pretty much have one of the most amazing volatile market response ever. It is pretty amazing.

Small caps certainly require more rigorous due diligence not only on the fundamentals but also on management, regulatory aspects and other external influences......also the free float and shareholding pattern can provide some meaningful information....personally I speculate only a small proportion of my portfolio on these 'riskier' investments and try to stay diversified....

1 sec

Even if algos DON'T trigger an automatic sell-off by scanning headlines for key words like "OPEC", "price cut" and "gold," bad news can cause a big sell-off in a single day.

Consider GT Advanced Technologies.


You can read more about it at this link, but the chart sorta says it all.