Your Stop-Loss Has a Price Tag (And Liquidity Hunters Know Exactly Where)

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Stop-Loss Placement: Why Round Numbers Cost You

A stop-loss is a legitimate and valuable tool. The problem is that most people put theirs in the same place: just below the obvious support level, at a round number. Research on more than 100 million US stock transactions found that clustering at round numbers costs investors approaching $1 billion a year. And a stop-loss, once triggered, becomes a market order — which is to say, it becomes liquidity for whoever wants to buy. The fix is not to abandon stops. It is to stop being predictable, and to size positions so you never need a tight one.

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