As members who read my Posts regularly may be aware, I presently have a Stop Loss order in place to sell shares of PGX. This is actually a Stop Limit order at 14.32 (same Stop and Limit prices) so that I do not get “raped” by slippage. When I checked my charts this morning I noticed a sharp “spike” in the price chart for PGX:
As can be seen in the above figure, price went way below my Stop price – but my shares had not been sold – so I decided to look a little more closely at the price action. The following figure shows a 5 minute chart of PGX, including trading activity in the overnight session:
Normally, there is very little overnight trading in PGX but, for some reason, between ~8:15-9:30 last night there was a little trading activity that caused the “spike”. I say “a little activity” because volume was only ~5,000 shares in this period.
This is only speculation on my part but it looks as though what happened was that some (unscrupulous ?) trader was able to sell a few (say 100) shares at ~14.04 (the low price of the “spike”) – normally, in a liquid market, this would not be possible because the bid-ask spread set by the “Market Makers” would set the minimum sell price to the “bid” level. However, in an illiquid market, spreads can widen, therefore, in the overnight session it may have been possible to place a sell order (in the hope that it would get filled) and get “lucky” enough for it to get filled. I say “lucky” – why would you consider yourself “lucky” to sell at 3.5% below market? – because this might “trigger” stop loss orders (placed by other traders) and (fortuitously ?) allow you to buy a few thousand shares in the $14.04 -14.50 range. These are the sort of games played by “algorithmic” and HFT traders.
It looks as though the “spike” also triggered automated buy signals for “regular (normal market hours) ” Traders since the volume in the first 5 minutes of regular trading (9:30 EST) was way higher than average ( greater than 55,000) – but, of course, this is now far too late to be of immediate benefit since the bid-ask spread is back to “normal”.
A little off-topic – but I thought maybe of interest. Lesson – beware of illiquid markets – that’s why we prefer to use liquid ETFs trading with high volumes to avoid “slippage”. Note that my order was not filled because a) it is a “tight” Stop Limit order and b) is not active for “after hours” trading.