Thursday, May 6, 2010

Why this stock market drop really does suck: A lesson on stop-loss orders

I think most people won't understand (or even know of!) exactly how bad the stock market drop today was in terms of the general economy.

Many people use what are called stop-loss orders. Basically, they are rules that say "If a stock goes down to this price, automagically sell it.". There were a few stocks that were quite popular that either traded at incredibly low prices, or even at 0. I think P&G, 3M, and Accenture were mentioned? This means, that if anyone had stop loss orders for any of the stocks at the time these stocks so drastically dropped, they just lost that money. It's gone, you can't get it back. This is the stock market.

I am not sure if hedge fund managers using stop-loss orders is common practice, but these hedge funds can be massive.

I am sure that a lot of money in our economy simply vanished today. And not to mention other countries investing in this country for protection from theirs.