One of the challenges of today’s stock market is that it moves much faster. Traders and investors are severely disadvantaged as up-to-the-millisecond price quotes do not reflect the true state of market conditions. Given how quickly prices and trades can change, there can be large differences between a price quoted and the actual execution price. This mismatch is most acutely felt in high-speed markets, which puts additional pressure on traders who must continue to auction orders into these volatile dynamics.
The NASDAQ Stock Market has a very interesting structure, consisting of competing Market Makers. Over 500 firms have aggressively made markets, resulting in a dynamic and competitive marketplace. In such an environment, market orders are filled on a first-come, first-served basis. Yet, with fast price moves, orders do not always get filled at the same price. For instance, you may need to fill a 10,000-share order in two pieces. So you might fill the first 5,000 shares at, say, $20 and then the other 5,000 shares at $25.
Real-Time Price Challenges
In a rapid market, the value of real-time quotes can be lost almost instantly. An execution that looks like a great price could turn out to be so by the time your order gets to the market maker. Remember these things and you won’t be caught off guard! This lag time can leave traders in the uncomfortable position of receiving unanticipated fulfillment prices that can vary significantly from their original bid request.
A market order of 10,000 shares might be filled at different prices. For example, you might get 2,500 shares at $5 and 7,500 shares at $10. These types of situations show just how dangerous it can be to engage in speculative trading in a dynamic market characterized by erratic price swings.
Additionally, many stocks in rapid markets have high upfront and ongoing costs–up to 70% in some cases. This last elevated margin requirement is actually most pronounced across the entire Internet, e-commerce and high-tech sector. Finally, market conditions are always shifting. Consequently, stocks are often retrospectively flagged to the high-risk stock list based on their characteristics and activity.
Market Orders and Execution
Beyond the concept of market orders generally, traders need to consider the specific structure of market orders when trading on deep fast markets. For example, when traders have to submit a market order, they might find that their execution can be very different for the amount of shares they requested. Breaking of larger orders into multiple smaller blocks can result in inconsistent pricing.
The execution process becomes even more challenging when investors use stop limit orders. These orders differ from standard stop orders in two significant ways: they allow traders to set a specific limit price at which the order will be executed, thereby providing them with greater control over transaction pricing.
Traders should be able to look up whether certain stocks have been slapped with new margin maintenance requirements. Simply give customer service a call at 1-800-TRADERS to learn more! By adopting this proactive approach, they will be better equipped to manage their investments even more successfully in today’s faster, ever-changing market environment.
Economic Indicators and Market Sentiment
Recent economic indicators offer a glimpse into the overall manufacturing sector’s performance. Specifically, the ISM Manufacturing Index fell to 48.7 in April, down 0.3 points from March. This drop signifies a slowdown or even an expansionary phase in manufacturing activity. The index’s employment component rose by 1.8 points to 46.5. This increase points to future layoffs, though some glimmers of positive news are coming through.
Supporting manufacturing is the supplier deliveries component of the ISM Manufacturing Index, which rose by 1.7 points to 55.2 in April. This increase is impacting order delivery lead-times across the industry. It will be companies that suffer the most as they continue to navigate through these increasing delays and volatile operational costs.
One respondent from the food, beverage, and tobacco products industry highlighted key risks in the current market climate:
“The most important topic is tariffs. Risks include margin erosion due to rising operational costs and freight delays disrupting delivery timelines. Supplier relationships are strained by pain-share negotiations, and competitors are gaining share by importing from lower-tariff regions.” – A respondent from the food, beverage and tobacco products industry.
This feeling more broadly exposes fears surrounding the interaction between tariffs and market forces. Every trader needs to know what’s coming in order to avoid potential pitfalls.