In the ever-evolving landscape of financial markets, the concept of a "fast market" plays a pivotal role in shaping the trading experience for investors and market participants. Fast markets occur when trading volumes and price volatility surge, often triggered by significant events such as highly anticipated Initial Public Offerings (IPOs), critical company news announcements, or influential analyst recommendations. In such environments, the dynamics of trade execution, order fulfillment, and market stability become crucial concerns for all stakeholders involved.
When an investor places an order to buy 10,000 shares and observes a real-time market quote indicating that there are 15,000 shares available at a price of $5, the expectation is that their order will be executed at this quoted price. However, in a fast market characterized by a backlog of orders, the real-time quote may not accurately represent the market's state when the order is received by a market maker or specialist. This discrepancy arises because orders ahead of the investor's are executed first, affecting the price at which their order is fulfilled.
NASDAQ, one of the most prominent stock exchanges globally, currently has over 500 firms serving as Market Makers. Market Makers are NASD member firms that actively buy and sell NASDAQ securities, displaying buy and sell quotations for guaranteed numbers of shares. Each Market Maker competes for customer order flow, striving to maintain liquidity and orderly markets even during periods of heightened activity.
Specialists, on the other hand, are securities firms holding seats on national securities exchanges. They are tasked with maintaining orderly markets in specific securities for which they have exclusive franchises. Both Market Makers and specialists play critical roles in ensuring that markets remain functional and efficient, despite the challenges posed by fast markets.
In fast markets, service response times and account access may vary due to several factors such as market conditions and system performance. It is important for investors to be aware that market conditions can impact the execution of their trades. For instance, if orders placed before theirs are executed first, there might be significant changes in price levels by the time their orders are processed.
Understanding different types of orders can also affect trade outcomes in fast markets. A Good 'Til Canceled (GTC) order remains active until it is either executed or canceled by the investor. This type of order can be advantageous in volatile markets where prices fluctuate rapidly. Similarly, stop limit orders differ from regular stop orders in that they only become market orders once the stock price reaches a specified stop price, executing at the current market price.
The volatility seen in sectors such as Internet, e-commerce, and high-tech industries has led to higher margin maintenance requirements. Intraday trading in these volatile stocks necessitates maintenance requirements that can be as high as 70%. Stocks are regularly added to this list based on prevailing market conditions.