Ask Colin

Why did Commsec not execute my stop order?

The detailed question was:

I use COMSEC as my broker and they have a conditional sell that I have set for the whole portfolio./p>

In the last week I have had a couple of shares go through the trigger point for stop loss without selling. In both cases they have released “negative" information to the market and there was a 10% plus sudden drop in price.

In one example the share had been drifting lower for some time, so i was ready for it to trigger the stop loss. However because the last drop was sudden, I now find that I am down 8% from my trigger price and still own the shares.

I have spoken to COMSEC and there is nothing I have done wrong, it is just the case that when sudden drops occur, it often happens that there aren't enough buyers for the shares on the way down.

As such, what is the use of a stop sell if it does not work the only time you really need it (when there is a sudden and significant drop in price)?

I am not sure if I am still missing something here and would really appreciate your view on this.

I am not sure I can be that helpful with your question because I am not a Commsec user and do not therefore understand exactly how their stops work. However, a few ideas:

As I understand it stop orders can come in many forms. The two main ones in general terms are:

  1. An unconditional stop – if triggered by the market trading at or below the trigger price, the stop is executed as a market order – in other words the best bid no matter how far below the trigger price.
  2. A conditional stop – these can come in many forms depending on the broker - if triggered by the market trading at or below the trigger price, the stop is executed as a limit order. The problem is that if the price has fallen through the limit it will not be executed at all. It may also be only partly executed if there is not enough volume at the bid at or above the limit.

From your email I am guessing that you may have used a conditional stop and either placed too tight a limit or Commsec may dictate a maximum limit that is too tight – in which case it is not a mechanism that will work in the way I execute my stops – if hit I sell at market.

Some other brokers offer a more flexible or system with wider limits – Bell Direct has been mentioned to me in the past.

I hope this is of some assistance.