In the breakneck speed of the stock market, trades can go awry in an instant as the market is always volatile and shifting. The NASDAQ Stock Market, consisting of more than 500 such firms, called Market Makers, is a good illustration of this fast-paced, dynamic environment. In an increasingly volatile market, the price quoted in real-time will frequently be stale or invalid. This leads to large price differences that traders need to be careful around.
Even minor market conditions make the prices and their trades change dramatically within a second or two. For instance, you could bid for 10,000 shares. That order might get executed as 2,500 shares at one price and 7,500 shares at another price. This fragmentation presents significant obstacles for traders operating within an increasingly high-speed industry. Under such circumstances, even real-time quotes may misrepresent the market’s true condition at the time an order is submitted.
This acceleration in volatility had some of these stocks popping up on daily high-risk issues lists. As a result, some stocks have initial and maintenance margins of up to 70%, reflecting their volatile history. This trend hits internet and high-tech stocks particularly hard. Their volatility usually results in higher margin maintenance requirements.
In a quickly moving market, orders are filled on a first-come, first-served basis. It is imperative that modern traders familiarize themselves with the types of orders at their disposal in order to protect themselves from unforeseeable changes to the market. A stop limit order allows traders some additional control over their transactions. In its execution criteria, it is entirely the opposite of a stop order.
Arguably, demand for the most promising stocks can dry up even more swiftly. Last week’s data indicated that global appetite has fallen to its worst pace of import order growth since 2009. This drop further complicates the trading environment. Traders are losing money to impossible conditions in the market. They need to measure the impact and performance of key currency pairs like EUR/USD and GBP/USD. Under highly volatile market conditions, both pairs can move in a strong bullish or bearish direction, with price levels easily hitting 1.1450 (EUR/USD) and 1.3560 (GBP/USD) in either direction.
If you’re a customer interested in fine-tuning your trading strategies and maximizing their value, please contact us for help. For questions about specific margin maintenance requirements or other brokerage/trading questions, they should call 1-800-TRADERS for help.
Unlike the other major US markets, this structure of competing Market Makers that compose the NASDAQ gives the NASDAQ a unique competitive advantage. This competition often results in a race to the bottom on pricing and quality of execution. The speed of trading often leads to a queue that risks not only slowing the execution of orders but complicating or sometimes even killing transactions.
When the market is moving quickly, the need for knowledge around order types is especially critical. With a limit order, the trader puts a “buy price” that shows how much they are willing to pay at most. It further sets a so-called “sell price,” the minimum they would consider taking. Implementing this methodology can significantly reduce surprise executions and save traders from unwanted market moves.
“Real-time quotes may not be accurate. Prices and trades move so quickly in a fast market that there can be significant price differences between the quotes you receive one moment and the next.” – Source: Fast Markets service
Traders need to be careful and watch out for unusual order types. For instance, “All or None (AON)” instructs brokers to execute the whole order or none of it. “Day Orders” expire automatically if you don’t execute them within the same trading session. In comparison, “Good Til Canceled (GTC)” orders remain pending until you either trade them or drop them.
The term “Fill or Kill” as an order type means the order must be filled in entirety immediately. If that’s not possible, the order is completely canceled. Moreover, “Immediate or Cancel” permits partial executions that will cancel the unfilled part of the order immediately.
Nouvelle Freeriding is banned. It includes purchasing and selling a security on the same day and using the proceeds from the sale to finance the original purchase, and it can result in debilitating penalties. If caught, a trader’s account could be frozen in perpetuity, with a minimum of 90 days freezing period. Though day trading itself is not illegal, a commitment to following rules is important in order to protect your accounts.
Margin requirements shape the playing field in volatile markets. There is a federal minimum requirement too—Regulation T of the Federal Reserve Board sets a minimum requirement. You need to have $2000 or 50% of the purchase price for allowable securities purchased on margin. This regulatory framework protects the public by making sure that traders are well-capitalized before they are allowed to engage in very risky transactions.