How does bailing out of a market crash works?


Let’s say you are holding $100k TQQQ now, if tomorrow the market is down by say 3%, signifying a major market crash similar to the ones in 2008 and 2020 March, how fast can you sell off all the TQQQ shares before the crash continues the next day? Is it possible to minimise the loss to be just 3*3% = 9?%? How difficult is it to bail out on ETF/ leveraged ETF in general when the market comes crashing down? Thank you!

In: Other

Creative use of sell stop orders can be used to minimize losses if one anticipates the possibility of a sudden decrease in share price, although one assumes the risk the stock/ETF might rebound soon after the sell order executes. (Stop orders also can’t be placed/executed in after hours trading)

As long as you’re not moving so many shares that it’s difficult to find a buyer it should be nearly instant. TQQQ trades ~47M shares per day, so likely not an issue if you’re dealing with $100k.

You’ll get whatever the market price is at the time you execute the trade. For normal online brokerages, that’s a matter of minutes during the trading day.

It doesn’t really matter if the overall market is down 3% or up 40%, just what the TQQQ market price is. That *should* track the NASDAQ100 very closely but it’s not actually required to. But let’s assume the NASDAQ100 dropped 3% and QQQ did its job and dropped 3%, so TQQQ dropped 9%. If you hit a “sell @ market” trade at that moment, you should expect a 9% loss *relative to what it was worth before the drop*.

*Your* actual gain/loss depends on what you originally spent to buy those shares that are currently worth $100k. That’s called your “cost basis”. If you bought them a while ago for only $40k, and you sell them for $91k, you’ve *gained* $51k even though the price dropped 9% since yesterday.