Hacker News Reader

Comment by grondilu | Hacker News Reader

Sometimes I wonder if it would make sense to place long-term buy orders at a ridiculously low bids. Just in case.

On Bitcoin exchanges, sure. But here I think there's too much liquidity and automated trading.

I believe the recent Ethereum flash crash demonstrated that this strategy wouldn't work for cryptocurrency either. Ethereum price dropped to $0.10, but it rebounded in about 5 seconds because trading algorithms put in lots of bids at the really cheap price.

It did work, but not for many.

https://news.ycombinator.com/item?id=14611653

https://news.ycombinator.com/item?id=14690908

Too much liquidity?

Except these weren't real prices. Buy orders would not have been triggered.

It seems like the price was trying to be set to 123.45 -- there are some discrepancies on different sites; not really clear whether any trades took place in little or no volume after hours, or purely feed error.

As far as I can tell, it happened after the markets closed. Even so, my brokerage had the correct prices the entire time.

The equities markets have Limit Up/Limit Down bands (LULD bands) that prevent big swings in prices. Like the other commenter said, your strategy might work in cryptocurrency markets, but not in equities.

It works if your orders can be executed in after hours trading when liquidity is restricted.

Recently when BTC flash crashed (or maybe it was Ethereum) those who had placed such orders made a ton of money. It's a safer bet with virtual currency because of its instability

It was isolated to a single exchange GDAX and happened with both Bitcoin and Ethereum at different times.

Such trades would be reversed.

Unless you cashed out.

It takes 3 days for trades to settle, so you can't really cash out quickly. Google "T+3" for more details.

Not in cryptoland. The guy who bought ETH at $0.1 could have sent the ETH out of the exchange minutes later.

Equity exchanges have cutoffs for limit prices. Even if you are able to do that you're setting aside capital that could have been used somewhere else.

That would mean locking in the amount you dedicated with very extremely low (lottery level) chance of any return. Most probably, you would not see that money ever again (provided you don't decide to remove your bid, obviously). Better give it to a charity :)

Isn't that sort of what happened in the "flash crash"? Or was it purely market-makers and algorithms working their way down to 0? Big regulated markets now have circuit breakers to prevent this, unfortunately.

But the idea is that you put a buy option at the low price.

Ie, you say "I would like to buy 1 million microsoft stock, at the price of 1 cent".

The flash crash was cause by stop-loss orders. IE, if the price gets low, then sell. Instead of price gets low, then buy.

I am not a trader but I believe stock markets take place on an order book with bids at low prices and asks at high prices, with the market clearing in the middle. The upshot of this is that your trade for a million shares will sit on the books like everyone else's, waiting for a seller. If somehow a seller entered a market order to sell 1 million shares for whatever price it can get, and somehow the computer matched it to your order, then that would actually be the last price traded, i.e. a crash.

tl;dr: your strategy is more likely to contribute to a stock crashing than you think.

Reply on news.ycombinator.com