Let’s say you own a stock trading at $40 and you put in a stop limit order to sell at $35. The next day, the stock gaps down to $30, blowing by your stop/limit price (order doesn’t execute). In theory, there are other market participants out there with limits to buy at $35. So, my question is does the exchange or someone match stop/limit buys and sales in a situation like this and if not, why not?
If the stock gaps down to 30, then in the eyes of the MMs, there was too much demand to match up orders at 35. They felt the market would be best served by sending the stock down to 30 where most sells would meet most buys.
Team - I’m looking at it this way (maybe the wrong way). If you have buyers and sellers both willing to transact at $35 and the stock goes “through” that price, wouldn’t it make sense to match them up?
Yes they could be matched up but it all depends on overall supply & demand of shares. If a stock is trading at 40 bucks today after the close, and announces after the bell, that they’ve had the worst financial quarter in its history with no signs of improvement, stock will probably open up at 20 bucks, regardless of whether there are orders that can be matched up. The reason is because the MMs would have to open the stock up at 35 just to match those orders, knowing full well that based on the overall supply and demand on the screens, stock would take an absolute nose dive from that level, screwing investors and traders along the way to 20 bucks. MM’s gap stocks to provide for the most efficient way of dealing with the supply & demand.