When Machines Run Our Money
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Earlier today, the stock market took a crazy tumble losing nearly 1,000 points in the Dow Jones Industrial Average at one point only to rebound back to losing just under 350 points. The rumored cause of the giant dip was a typo made by a stock trader entering a “15B,” meaning billion for the number of shares he wanted to sell instead of “15M,” meaning million when selling Proctor and Gamble. Seeing a giant move like that would cause panic enough for individuals managing money to sell their other positions and mimic the movement in that particular stock that sold off.
Now, what about people who aren’t around the computer all day or aren’t able to call their brokers wanting to make a sell order when they see that much activity? Some of those people use stop loss orders which are basically an order that sits and waits to be executed when the stock reaches a certain price mitigating the losses for the individual. A big sell-off would wreak havoc with people who were just trying to cut their losses when something like this happens. The result is the market plunging almost 1,000 points. But, what happened after it nearly sank that low? It rebounded to gain close to 650 points. That investor who thought he was protecting his money and may have been satisfied at the time the trade was executed is now feeling swindled, all because of a typo.
If you ever decide to place a stop-loss order, think of the people who could be gaining from you selling on a big dip. Several stocks traded as low as a penny or less, only to close above $42.00. Wouldn’t that have been nice to buy it for a penny?
You may feel like you’re making a smart move by placing a stop-loss order to save you from losing a boat load of money, but when the market is this volatile, trusting a machine to watch over your money could prove very costly.
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