Topic: Guys, stop using stop orders (Read 1116 times)

I don't trade right now, and I'm only watching the markets to see if I want to try it or not. I've been watching it for a long time now, and I do think that stop losses are necessary if you want to trade. You need to place them very well, and give them a lot of room, because like you said the market is to volatile, but in coins with enough liquidity, like bitcoin or ethereum, and in big exchanges, I think they are important. Markets follow certain patterns, and for instance a stop loss at $10263 in BTC at coinbase is important right now, or if you want to give it more room, put it at $9324. Bitcoin i attempting to break $12k right now, but if it fails, a pullback to $8300 or less is possible.

Besides, if you use stop losses, that means that you check the market regularly, or that you would get an alert if your order got matched, so you would always come to your exchange and check how the price would evolve. Maybe you would lose some money on that trade, if it activated your stop loss, just to bounce back, but it would actually save your ass a lot of times in the past. If you consider that the price came down from $20k imagine what a stop loss at higher levels wouldn't have done for you.

Yes the stop orders have really become nowadays a matter of serious concern.It would be only useful in times of big crashes.For example,if we had placed a stop limit order of 18,000 dollars when bitcoin's price was at ATH of around 20,000 dollars,then we would have got saved from a huge loss since bitcoin's price crashed to very low.But if bitcoin's price had increased more than ATH immediately to 21,000 after falling to 18,000,then we would have to regret for placing our stop loss order.

Stop LIMIT orders are probably the best bet. Even then often the larger the crash the more immediate the recovery.

Stop is not a stop!!! It does not sell at the price you set. Why cant it not be so easy? Because otherwise Bitfinex and Bitstamp and other exchanges can not manipulate. Bitfinex sell at any point of past price! Here is a screen dump where I lost $20 ...

https://drive.google.com/file/d/1fMOW1Va366UFa5WMcu1g0yuooreceBKv/view?usp=sharing

Not to resurrect an old thread, but this (undeniable) crash hasn't generated any stop loss cascade on the exchanges I monitor, quite surprisingly.

It can only mean 3 things:

1. people more clever with their stop loss, mainly using limit stop loss, or no stop loss anymore? Have you reduced your use of stop orders?

2. exchanges having improved their way of handling stop orders. Possible, but I doubt it, because that'd have required explaining how their handling works, as improving the process to reduce cascades has to have drawbacks as well

3. most likely, the fact that this crash has been more progressive (which is scarier IMHO), not really as abrupt as past ones? I've seen segments in this crash that can be defined as flash crashes, though.



Edit: I just went back to Kraken to check it (sorry to say that it's still broken btw), and if you check the BTC/EUR price on January 13, pretty interesting what happened there! Something strange also happened the same day in BTC/USD, so it might have been a bug, or a whale made a REAL mistake there.

That is exactly what is wrong with using stop orders. Stop orders are a nice tool when something goes down *in a long time* (like, at least 10min).

With a stop loss you CAN lose nearly all of your money. It happens during nearly all crashes, has happened, will happen again. You can check your exchange for spikes caused by large market sells, most likely triggered by stop orders.

The extreme case being selling your ETH for a few cents - you have pretty much lost all of your money, for a stupid reason.
And this is the case you describe - you are in a loss, most likely the market went bad, everyone is in a loss, all stop orders got triggered, if you're last in the chain, you're gonna get hit bad.

It has happened again for this crash, and it will happen again.
Go to Bitfinex, watch EOS/USD. There has been, again, some EOS bought at 3USD, and sold back immediately at 8USD. On which side do you prefer to be, the one who sold his EOS at 3USD? In any case this is a market sell. Most likely triggered by a stop. And it's not even just 1 idiot with a stop on a large amount, there may have been some little ones triggered after the idiot. That could have been you.

On one hand, I wish I had bought those EOS (no idea how much it was, but there was some volume there), sadly I had removed my orders 2 days before. On the other hand, if stop losses were avoided, "crashes" wouldn't be this bad, they wouldn't be automated, they would be human-driven and less instant, & thus probably less deep. But that requires everyone to stop using loss, or use loss-limit where available.


What you are guaranteed however, if the dip is instant, is to get maximum slippage. Noobs will think "I bought at 900, now it's 1100, I'm gonna place a stop loss at 1000, I will at least ensure a profit of 100". There is almost no chance it will sell at 1000, most likely it'll be around 950, *in this volatile market*. You'd better watch the order book before placing a stop, if it's very thin, 1 sell and your stop gets triggered way back.

Thanks for the advice.It appears newbies who find themselves on exchanges usually have no idea how to use these kind of orders and so eventually get their stuff messed and then the cascade of events follows.When I started trading I nearly got messed up through that too but was lucky they never got executed.

Yes you are correct that it could go straight through it w/o getting filled, but to reduce this risk, you can create an automated execution algorithm which can cancel/modify the limit price to another reasonable price.

exactly people that are invovle ob it he is the one who will make a decision that is we can say that this is not a good idea to continue but as long as we can see that this is a helpful thing to continue and we know how we are able to do for then we should do our best for.

Stop order is basically to put a  stop in case you are in a loss and you wont lose all ur capital in case the coin you are trading dips down too low in a very short time. Anyways its upto the trader how he uses it but i think most people do not use it to it actual purpose.

aren't you talking about a limit buy?


I mean, stop buy does exist, but... it's an even more stupid thing to use. And considering the BTC hardly went lower than 10500, I'm pretty sure you're talking about a simple limit buy, which is THE thing to always use (instead of market buys, which is as risky as market sell).

Why do we need to stop using stop orders? in fact, i have bought a lot of bitcoins during a Dip time because of my stop buy.
I had a open trade of $10000 to buy bitcoin at $10,500, and it was filled up today and i was not even awake when it happened.

Back to this old thread, stop losses stroke again, you can see IOTA's sold for like 1USD, as well as other coins on Bitfinex. Sadly I removed my orders a day before, to use my cash

Flash crashes, too many to count. They generally get blamed on fat finger error or whatever. Fundamental news like the example I gave you earlier with the SNB happens more often than you would think as well. Those ones don't come back anytime soon.

Yeah, that was my question, how many times have you witnessed this in 15 years?

What I'm describing has happened 3x in a few weeks, and that's just those I saw on the 2 exchanges & few coins I'm checking. One made the news and amazed everyone, showing that it's not something many people expect to ever happen.

stop orders can be a double edge sword in the cryptocurrency markets. specially when it  comes to altcoins and when you don't know they are pump and dumps. because a coin that is getting pumped and dumped can have weird swings due to its manipulated market. that means sometimes when you place an order like that you miss some opportunities.

this doesn't mean stop orders are bad or should not be used. it just means you have to be more careful and also place then with more care, or even if you could you should add some more conditions to the order that is placed before it is finalized. meaning your only condition for stop order should not be "price".

exactly. a beginner will be difficult to understand. can get into trouble

With up to 500x leverage much smaller % flash crashes can cause you much more financial pain.


What if it is due to some fundamental news that has a lasting impact on what that true value is?


Good luck.

I have tried very hard to help you here by explaining why you should not use a stop limit as a stop loss. It's entirely up to you if you want to learn the hard way and find out in your PnL column one day.

/Quin out

And in 15 years, how many times have you seen a flash crash down to -95% that did NOT rebound immediately?


The rebound totally depends on the true value, and that is exactly what you estimate to be that value that should be the limit price of a stop order.
Hey, I see a flash crash down to -95%, regardless of the reason, a hack or some chinese tweet, I buy!


On the ETH case, I hadn't seen this guy's screenshot btw. This shows that, as someone pointed out, it can be very true that some insider in the exchange could use the precious stop loss info to make big money. A million in a few seconds.... I wonder for how long that order had been sitting there.
https://stocktwits.com/jdemasie/message/86641301

A stop market is always guaranteed to get filled. A stop limit places a limit on the chances of it getting filled. A stop limit will not get filled at a better price than a stop market so its only use should be to avoid slippage on an entry.

In the example, you cite of a flash crash the market immediately rebounded. That means that yes you could have got lucky if you were trading without a stop at all because the market came back to you. It is far more common for a market just to suddenly start crashing and then continue long after your stop was filled. Not using a stop in those situations will cost you dearly.

I have been trading for more than 15 years and I'm just trying to give you good advice.

I agreed. Stop orders are not bad. The question is how you are using it. If you are just playing guessing game with stop orders, trading is not for you.

There are alot of confusion in trading that if you don't have strategy that works for you it is not good to buy into any trading opportunities. Many traders has actually lost huge amount of money because of this place an order in trading platforms. Placing a trading orders is good for margin trader and not buying into a particular coins. If you bought neo cheap you have to wait for it to grow before sell it like every other markets and placing on stop under on neo will ever make you to lose money as this market is higherly volatile and fluctuate alot.

This really has a huge impact on the community, but these are also the whales that change the direction of the market.

ok, so we at least agree that in a fast market, chances are that the stop won't be processed.

We just don't agree on whether it's a good thing or not. I'll still maintain that there is always a price at which we don't wanna sell, a price that can only be reached because of technical limitations, nothing linked to the market itself, that is, nothing linked to demand & offer at all.

A stop loss final sell price should be based on the lowest demand, and it simply is not. It is based on the lowest demand in the current order book, which is only one part of the demand.

And you keep saying that a stop has its uses, when things like the mini-temporary crashes in the ETH example don't happen. But no one can predict when they happen, so the fear is always there.
Normally the guy who got his ETH sold for a few cents should have had his ETH sold to the highest bidder in a normal, "human time" auction, in which all of his ETH would hae been sold way way above 10 cents. Perhaps 75usd at the lowest. Which would have still been a bargain for the buyer, and would have been way better for the seller.
The books only represent those who are ready to have a lot of fiat stuck doing nothing in the exchange (which is already a risk in itself), not the ones who have some fiat & are ready to buy opportunities when they see them coming, which I believe is the majority.

Regarding what happened with bitfinex, this was done to merge marginal traders, but not those who bet, the stop loss. If you went into the deal and put a stop loss under the support line -3%, then what losses are we talking about? If the asset went into growth, then you move the stop loss higher and at any strait of the course, you exit the stop order already in the plus. More suitable: do not use margin trading, especially on bitfinex with their tether and straits.

That is all I am trying to explain.


You left out the "in a fast market".


Not specifically, you can choose the offset.


Yes, it does if you set the limit and stop at the same price. This makes sense when using one to enter a trade, typically in a breakout play. You use the stop to trigger your entry and by using the limit you avoid any slippage. If it fails to get filled no harm is done you just missed the trade.


Precisely. The stop just triggers the placing of a limit order. If there is no corresponding order at or better than your limit price it is not possible for the order to be matched and therefore it will not get filled.
If using a stop market gets filled at a certain level then that is the best possible level a stop limit could have been filled in. If your stop limit was outside that range then it would not have been filled. It is possible the market could turn around and eventually your limit gets filled but that is exactly the same thing as trading without a stop and just praying the market come back to you. 

I didn't realise that you needed it explaining at such a basic level.

I never used stop limit order in crypto trading, but it's really a useful tool in forex. I think Stop orders are not generally bad in crypto too, but people should use it without understanding what could happen.

You haven't explained anything, you just said it would never be filled. Perhaps you're talking of a stop order that would have its limit at the stop price, which isn't something that exists in any exchange, because that wouldn't make sense.

Stop limits have a price trigger and a limit price, they are separate.

I have explained it to you already, you don't want to take good advice so I'll leave you to find out for yourself.


I'll give you the example of when the SNB announced that they would no longer support the CHF in a pegged range with the EUR. Not only were many traders wiped out whole Forex brokerages were as well. These things happen, it is part of the risk of trading.

Not understanding the implications of the difference between a stop market and stop limit and when to use them is a good way to increase that risk.

of course it's possible, Bitfinex has a stop-limit, Kraken had (before becoming worthless), & a lot of other exchanges I'm sure.




yeah, I often have low orders to benefit from those cascades, but you need a lot of fiat sitting on the exchange for that.
That said, 1000 at 10 cents, that's just 100, quite doable to place one order for each currency.

Why wouldn't it be filled?

If you set your stop at 50, and your limit at 10, there, if it drops below 50 and you're near the top of the book, you will sell at 40, 30, 20 maybe. In any case, at prices you're ok to sell at.
If you're the last in the book and there aren't enough buyers, it will indeed NOT sell at 5. But that's the whole point!, you normally DO NOT WANT to sell at 5.

Let's face it, your value was 100, selling at 5 is pretty much the same as losing. 5 is no value. If it doesn't stop at 5 and goes down to 1, sure, you've lost even more, but you had pretty much lost everything anyway.
The reason you do not want to sell at 5 is that you are pretty much guaranteed (& you know it) that if a market falls from 100 down to 5 in a minute, it doesn't mean no one wanna buy, but it's a chain reaction of stops and no one IS GETTING A CHANCE TO BUY.

You are pretty much guaranteed that if your share goes from 100 down to 5 in a minute, it will go back to 10, 20 or 30 a few minutes later. So why the hell would you want your stop to sell at 5 and lose every chance to get back to a decent level?

The guy who got his ETH sold for a few cents, that's just not normal, it's a technical problem, not a human problem. Had the guy been given access to a stop limit, he would not have set his limit to a few cents. He would have set his limit to like 100usd (I mean come on, an ETH at 100, pretty much guaranteed to sell), thus his stop would indeed NOT have been processed, and he would have been happy with it.
Sure, he has to be aware of the technical problem behind stop orders, but he's not given an alternative. Which is why I advise to simply not use stops, unless you're certain that there won't be a massive drop, which just can't apply to crypto.
Bitfinex provides stop-limit, I really advise people to use that instead. This said, limits are normally processed after market orders, so it's not that ideal either, but still safer.




I gave examples that just happened, have happened a few weeks ago & made the news, and will happen again. The bitcoin seems to get its daily instadrop of 10% these days. So for alts it's even worse.

It's kinda the risk that comes with being a trader. I only buy and sell when I want to do that at the current price, or I place an order to sell above the current price. But I'm not a trader: I keep my coins and euros in my own wallet, until the moment I'm ready to make a transaction.
I've said it before and I'll say it again: whales love triggering stop orders, to trigger a cascading event up to very low prices. When that happens, the whale strikes and buys your coins at a very low price.
This is also why I don't worry much when Bitcoin drops a lot in a short time: it's all manipulation, stop losses being triggered, and panic sells. Right after that the price usually bounces back up when traders try to buy back the cheaper coins.

I'm not sure if it's possible on exchanges, but if I'd ever use a stop order, I'd want to be able to set a minimum price too. For example: sell at 6% drop, but don't sell anymore if it drops more than 20%.

You could also do the opposite: place very low buy orders at several exchanges, so you can be the guy who buys 1000 ETH at 10 cents each!

This is the point I'm really trying to correct you on more than anything else because it is so important to understand. In a fast market, a stop limit is completely useless as it will not get filled, it might as well not be there, and that is why professionals do not use them in this way.

The examples you give are very extreme cases of what can happen in an illiquid market. If the people in those examples did anything wrong it was simply not understanding the risks involved in trading. This also brings me back to my other point of not trading illiquid markets.


This is a very common misconception. You should see the futures markets after a major news release. The high-frequency algorithms running on specially built servers colocated at the exchanges make crypto look pedestrian. After the CME announced the introduction of Bitcoin futures in an interview the head of CBoE said that they had studied volatility and found Bitcoin to be in line with the VIX.

Also, you have to factor in the increased level of leverage we are using which amplifies the financial impact of that volatility. Crypto exchanges offer up to 3.3x leverage whereas I trade the Emini S&P 500 on a fixed margin of $400 per contract. The contract specification is a $50 multiplier and the minimum price increment 0.25 points making $12.50 per tick. At the time of writing this the current bid is $2640.75 giving a value of $132,037.50 so divide 400 gives leverage of 330x. That means price movements are amplified 10x in my PnL column compared to trading on Bitfinex. So the similar volatility to the VIX is actually 10x more when trading the futures.

Because it seems to be way easier & too tempting to manipulate market downwards than upwards.
Hell it even happened because of a simple tweet last time. That was just a rumor - ok, which got later confirmed, but still.

Of course shorting is legal, it's the ways that people shorting push the market down that are illegal, but how do you even prove such manipulations..


Was it a normal mini-crash, it depends which chart you look at.
If I watch BTC-EUR on Bitstamp, I think the 8000 to 7000 candle would have been avoided with better handling of stops. And then there would probably have a bit less panic afterwards. Instead of a 25% dip it could have been 15 or 20, maybe? And I do think the majority was a cascade of loss - that doesn't mean people wouldn't have sold manually if stops didn't exist. But they would probably have sold less. It's as much the very abrupt dip as the depth of the dip that causes panic IMHO.
But it's still ok. The cases of ETH/NEO/OMG are not ok at all.

Why should shorting be illegal? It is the same as speculating on the price increasing. I actually think it was simply just a normal crash, yes of course there were some stop orders thrown in there but not enough to see the falls that we did, at least not in my opinion.

Stop orders are not generally bad. Sometimes, coins are too early sold but often it protects traders agains big loss. I even look for a dynamic stop order.

Let me explain in depth.
-when you place a limit sell, say at 100, that's the price you wanna sell at, and either it will sell at 100 (in one or more chunks), or won't sell at all.
-when you place a market sell, you sell your share to the highest price of whoever is ready to buy it (in one or more chunks).

You can understand that if you have like 1000 BTC to sell, and you place a market sell, some will be sold at 100, some at 90, some at 85, etc.. and if you have many and the order books are small, some will end up sold at 1 cent.

So that's where the problem of a stop loss is, the price of your stop loss is the price that will trigger a *market* order. You placed a stop loss at 100, it will then sell everything to whoever wanna buy it, at 100 or under.

That happens instantly, thus it only applies to the existing order book, it won't leave a chance to anyone to buy manually.
And when many people have stop orders, the falling prices resulting from market sells will produce a chain reaction. There will be a huge lot of sells that the order books aren't ready to cope with, and your share for which you placed a stop loss at 100, may end up being sold at 1 cent. And some lucky guy who had placed a limit buy at 1 cent, managed to exploit your stop order & made a huge margin in no time.


But the problem you had was probably due to the volatility. You see the market price at 130, you place your stop at 100 and you think you're ok, but the high volatility can make the market price fluctuate heavily between say 90 & 150, fast enough that you don't even see it. You then think that the exchange triggered your stop order by mistake, but it didn't, it just went under 100 & bounced back so quickly that you didn't see it happening.
Even a stop+limit wouldn't have helped here. To place a safe stop you have to watch the order book chart, to see if there is a hole around the mid price, to see if there are chances that the mid price is likely to go up & down very quickly.

I couldn't understand your problem accurately since I'm a beginner, but I faced problem many times with my stop orders. In bittrex, many times they didn't work in the cases which they were supposed to work actually.

I can't understand what's wrong with my trading orders.

Let me take, again, that example of that guy who sold his NEO at $4. But we could take the other example of that guy who got his ETH sold at 10 cents, if it makes it clearer:
https://www.reddit.com/r/ethtrader/comments/6iokzy/gdax_just_sold_a_good_chunk_of_my_ether_at_10/
https://www.cnbc.com/2017/06/22/ethereum-price-crash-10-cents-gdax-exchange-after-multimillion-dollar-trade.html
That made the news some time ago, and people didn't learn from it.

What did that guy do wrong? HE USED A STOP ORDER. HE DID NOT DO ANYTHING ELSE WRONG.

Wouldn't YOU buy an ETH at 10 cents? Who wouldn't? Do you think that if you had asked the guy "hey dude, you put a stop order there, we're gonna sell your ETH at 10cents now, are you ok with that?" he would have replied YES? Yet, that is exactly the risk you take with a stop order, it shouldn't be there, you should be responsible for the amount of risk you wanna take.

People who place stop orders are idiots who believe that if they place it at 100, they are garanteed to sell at 100.
The only real stop order is a stop limit. If you wanna place a stop at 100, you will probably place your limit at 50, or whatever price you're still confortable selling at. But I SERIOUSLY doubt that you will place your limit at zero, or I don't understand what's wrong with you.
Everyone understands that if something falls from 100 down to 0.1 in a few seconds, it's not normal market behavior, it's just a large dump, or a cascade of stops. Then you'd rather keep your coin, hoping it will go up again, rather than simply losing it.
The guy who placed his stop order and saw all of his ETH sold at 0.1, pretty much lost everything, quite ironic for something called "stop loss", no?


Obviously professionnal traders will tell you that stop orders are useful, because they don't trade things THIS volatile for a living.

I really think all exchanges should at least implement stop+limit, and put limit by default to 50% of the stop price.

There are things that could be done, even though I can't imagine any exchange doing it. Like if an exchange gets into a cascade of stops, it enters a phase of "you can buy, but you can not sell for now", spreading the cascade over time.
For ex, the other day's dip would have been spread over like 10min. For 10min, all the stops would have been processed slowly. Any manual sell order would have been scheduled for after those 10min, but any buy order would have been processed immediately. It's quite sure that the dip wouldn't have been this large. Not only it would have dipped less, but it would have rised back faster because there would have been less fear. And things like the ETH or NEO case would simply have been avoided.
It'd be quite easy for an exchange to implement this "special mode" happening whenever a market falls over x% per second, or something.
That's also what whoever is not an idiot would do, if he had to sell a lot of shares. He would spread it over time, selling little amounts, letting the market go up again. Quite possible that the ETH case wasn't a cascade but just 1 stop on a way too large amount.

An alternate solution would be, whenever a cascade of losses is detected, to average all stop orders. That would be less useful, but it wouldn't produce random big losers.

To stop using stop loss is not a bad trading advice. But it is a very serious damage and advice that will send a trader with small portfolio capital home early. If your capital is huge that will carry you without stop loss , then it is good.

I agree with your sentiment because when I was trading much more earlier this year I often noticed how my stop orders would barely get hit then rebound like mad and that kind of drove me mad . Needless to say maybe I should have been better in my approach but now I add the coins to the exchange when I am ready to trade and not a minute earlier. Learning about how exchanges have control over your coins and you are helpless helped me learn, good thing I didn't have to learn the hard way by losing a bunch of altcoins.

Fair point, with forex brokers you might indeed just be playing against their books.

I just wanted to point something out about your point on unregulated Forex brokers. The difference here is that a Forex broker might well be taking the other side of your trade rather than placing it with an interbank dealer and therefore stands to gain when you lose. An exchange should be an entirely different type of entity that is simply matching orders of its clients and has no financial interest in whether you make a profit or loss. I know with crypto being mainly unregulated there will always be doubts but it is a different level of corruption if they actively help some clients over others. What Forex brokers do is actually legal believe it or not.

Sure, but not all exchanges are regulated, which makes their "behind the scenes" that much more invisible and thus harder to sue and prove anything. As an example, just look at the Forex industry (which in my opinion isn't very well regulated at all). Lots of scam brokers out there, and I'm sure you'd find lots of stories with people whose lawsuits went absolutely nowhere. Now, I don't know for certain what crypto exchanges do and do not do, but I'm guessing that due to the lack of regulation, the temptation to utilize that sort of information is pretty big.  I also agree with TheQuin on the point that pro traders have a rough idea where the stops might be, and they place their trades accordingly. That's a big factor as well.

And just to clarify, I'm not completely against stops. I do use stops as well but only on more or less liquid markets. They are ok as long as you use them wisely and understand all the risk involved.

I'm not sure you got my point though. If the market runs straight through your sell stop limit order and it doesn't get filled then you are still short and the market can still be falling fast while you are trying to manually exit. In that scenario, you will lose a lot more than the slippage on a stop market order.

If you really are that concerned about slippage then there are steps you can take to reduce it.

1) Stay away from illiquid markets and only trade coins with high volume on the biggest exchanges.

2) Learn where is safe to put your stops.

or otherwise

3) Don't trade.

This. Its there for a purpose, and many traders can attest to its effectiveness. I will never leave a position open without setting a stop order, especially when I cannot monitor price movements.

No, no way. Tell me just *1* advantage of a stop order over a stop limit. You'd just set your limit to zero, and a stop limit would become a classic stop (yeah sure, limit orders are normally scheduled after market, but at zero it would just mean market. The thing is that if there are that many market orders in a chain reaction, the last thing you want is to be the last of them and still be forced to sell).
But please don't tell me you would ever set your limit to zero, you would not. You would probably set it to 50%, 30% at worst. You well know that nothing drops 70% instantly without recovering at least a little, seconds later. And 70%, anyway, isn't a "stop loss", it's just a loss.

Yeah, but that's exactly the point.

When you place a stop order at 1000, do you agree to sell at 10? Of course not! No one does. But the exchange can end up selling at 10 and you are screwed.
Stop orders should not exist, they should always be stop limit, and then you are responsible for the limit. If you want a normal stop, then you simply put your limit at zero, which, admit it, you would NEVER do.

If a huge BTC megacrash was causing my BTC to sell at 100, I would be pretty pissed. There is no way the BTC would instantly drop to 100, without EVERYONE buying.

While I see the OP's point, i believe it is too much of a generalization not applicable to all cases. Stop order is a very important feature and trading and has saved me a couple of times already. The thing is you really need to learn how to use and know when and at what price to place stop orders. Generally if you are a newbie doing guesswork with trading, stay away from stop orders.

Wouldn't that be fraud in some way and the exchange operators can be sued? That would be a serious breach in security for all the users that entrusted them with money and should be given the right lawsuit. We never know what happens behind the scenes on a trading platform. All we know is that they have all the information we relay to them that can possibly screw is if they used it for other purposes other than identification, proof of transactions and what not.

Personally if I'm not around or I think I wouldn't be able to keep up with the trading action, I don't place any sell orders but usually buy orders. Stop-loss? I use it only if I have to do something real quick and be right back immediately afterwards. It also occurred to me that exchanges also manipulate the prices, up to a certain point where they can touch stop-loss in order to make quick profits. It would be fraud, but what do we know right?

The problem with using a stop limit order is that market is likely to run straight through it without getting filled. As a professional trader, I can assure you that always having a stop market order in place to protect your account is one of the very first things you are taught. The problem you are observing is simply that many traders make the mistake of placing their stop in the obvious place. It's not as above suggested that the exchange can see them it is just that experienced traders know exactly where inexperienced traders will put them. Running stops has been part of trading since it began and it will always be.

Indeed..

That's why shorting should be illegal.

That said, when it's an avalanche on all exchanges it seems legit enough. An avalanche on one single exchange would look more suspect.

& who even knows if this wasn't a test for the "Bitcoin futures" guys (or alike) to know how predictably they can bank on dips..

One other thing is that exchanges see where most stop orders are accumulated. Possession of this kind of info is extremely powerful and should not be underestimated. Seriously! You don't need a lot of funds to actually trigger an avalanche of stop orders and then buy cheap at the very bottom. And who knows what exchanges do with this info... maybe they use it internally, or sell it to the highest bidder.

Do people really have to lose money to understand what a (market) stop order is?

What I see on Bitfinex & GDAX is frightening. Some really have sold their NEO at $4 (& thus some lucky ones have bought). Some have sold their OMG at $3.
Did they mean to? Of course not. It has happened in the past, and poor users cried & threatened to sue exchanges.

Market stop orders shouldn't be used, and they shouldn't even exist for crypto or anything this volatile.
What we saw yesterday was the result of a cascade of stop loss orders, nothing else. There was hardly a manual panic, it was automated panic.

At first I thought that Bitstamp had crashed, but then I realized that maybe it had been closed on purpose for a short time, to avoid this (especially considering Bitstamp had been pointed for such problems with stop orders in the past).

These are automated, they probably get a higher priority, happen very fast, hog servers, not even leaving buyers a chance to buy.
Perhaps all exchange need a protection for this, really freezing on purpose when this kind of crap occurs. There is a big difference between a panic sale that comes from humans, and the one from a cascade of stop orders.

So stop using stupid market stop orders. Use a limit stop order if your exchange offers one, or just don't.
Pretty sure that all exchanges will now start to turn their market stop order into limit ones, after this event, or the next ones. It's not even a bug, it's offering the wrong tool for the market.

Or... keep placing stop orders.. and give your money to some lucky guys who will make 300% in a few seconds.