Will Flash Crash Trades Stand?
A formula will decide which transactions stick.
Without knowing what had caused the 20-minute stock-market free fall on May 6, regulators and exchange officials knew it wasn't kosher. Blue chips morphed into penny stocks in the blink of an eye -- and then bounced back. Clearly, no one who could have sold Accenture (symbol ACN) at $40 a share at 2:45 p.m. and at $41 just minutes later meant to sell at a penny in between those times.
In short order, stock exchanges canceled thousands of trades in hundreds of stocks -- any trade between 2:40 p.m. and 3 p.m. that deviated more than 60% from the share price at the start of the rout. Two-thirds of the issues with questionable prices were exchange-traded funds and notes, including Vanguard Total Stock Market (VTI).
Investors spared a 60% loss are relieved. But those whose losses didn't meet the cancellation threshold are frustrated, and bargain hunters denied a windfall are seething. Investors cannot appeal the cancellations, coordinated among several exchanges. Expect a systemwide take on what trades will be deemed "erroneous" in future debacles.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Allegations of malfeasance or negligence on the part of an exchange will face an uphill battle, says finance professor James Angel, of Georgetown University. And don't blame the broker for a market order executed at the best price at the time of the trade. Exchanges will likely develop a coordinated system of stock-by-stock trading halts to address future disruptions, but the best protection for investors is to use limit orders. Like market orders, they tell a broker to seek the best available price, but they let you set a limit on how much you'll pay or how little you'll accept. Use limits on stop-loss orders, too.
Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage, authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.
-
Six Ways Women Can Overcome Any Financial Obstacles Holding Them Back
To improve your financial situation, focus on empowering yourself first.
By Kiplinger Advisor Collective Published
-
Should You Enroll in Medicare if You Still Have a Job?
This question is being asked more than ever these days, so here’s what you can do when it comes to making Medicare decisions while you’re still working.
By Jae W. Oh Published
-
How to Master Index Investing
Index investing allows market participants to use baskets of stocks and bonds to build the best portfolio to meet their goals. Here's how it works.
By Nellie S. Huang Published
-
16 Low-Cost ETFs to Buy
Expense ratios for index funds have declined in recent years, making them a cheap investing strategy to consider. Here are 16 low-cost ETFs to consider.
By Kyle Woodley Published
-
Best Banks for High-Net-Worth Clients
wealth management Kiplinger's 2023 list of the best banks for higher-net-worth clients.
By Lisa Gerstner Published
-
Stock Market Holidays in 2024: NYSE, NASDAQ and Wall Street Holidays
Markets When are the stock market holidays? Take a look at which days the NYSE, Nasdaq and bond markets are off in 2024.
By Kyle Woodley Last updated
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?
Markets When does the market open? It's true the stock market does have regular hours, but trading doesn't necessarily stop when the major exchanges close.
By Michael DeSenne Last updated
-
Bogleheads Stay the Course
Bears and market volatility don’t scare these die-hard Vanguard investors.
By Kim Clark Published
-
I-Bond Rate Is 5.27% for Next Six Months
Investing for Income I-Bonds issued November 1, 2023 through April 30, 2024 will have a rate of 5.27%.
By David Muhlbaum Last updated
-
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
By Lisa Gerstner Last updated