Global investors are facing a new reality. Higher Margin Maintenance Requirements are currently in effect for specific volatile stocks, particularly within the Internet, e-commerce, and high-tech industries. These changes, which are a result of heightened market volatility, have raised initial and maintenance requirements as high as 70% for certain stocks. This proposal is intended to address dangers posed by sudden price swings in volatile markets.
Effective today, customers are required to maintain additional margin. You can defiantly park a minimum of $2,000, or 50% of the purchase amount for eligible securities bought on margin, or 50% of short sale proceeds. Not meeting these requirements may lead to heavy penalties, such as holding the customer’s account in a freeze for 90 days. Investors are reminded to verify their individual margin maintenance requirements by calling 1-800-TRADERS.
The NASDAQ is structured very differently from other major U.S. markets with Competing Market Makers. Today, over 500 companies act as NASDAQ Market Makers, buying and selling stocks in a split-second, high-tech marketplace. They have access to stock price, which is subject to continuous analysis. Day after day, the smart money requires ever higher-margin demands in light of today’s market realities.
Margin requirements provide an important risk control mechanism in a dynamic, volatile market in which price differences can emerge quickly. In these conditions, even “real-time” quotes can be misleading if market prices change between when an order is placed and when it is executed.
“Real-time” – source: [“Fast Markets service response and account access times may vary due to market conditions, systems performance, and other factors. Potential Risks in a Fast Market “Real-time” Price 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. Even “real-time quotes” can be far behind what is currently happening in the market. The size of a quote, meaning the number of shares available at a particular price, may change just as quickly. A real-time quote for a fast moving stock may be more indicative of what has already occurred in the market rather than the price you will receive. Your Execution Price and Orders Ahead In a fast market, orders are submitted to market makers and specialists at such a rapid pace that a backlog builds up which can create significant delays. Market makers may execute orders”]
Investors need to be mindful that, because of these rapid developments, orders will not always execute as expected. For example, perhaps a big order needs to be filled in several blocks, with some filled at each price. Investors of all types can avoid these complexities by taking advantage of various order types. One such alternative is the Good Til Canceled (GTC) order, which remains in effect until it is executed or terminated.
A GTC order is extremely helpful in these volatile markets where things can change in an instant. Unfortunately, brokerages like WellsTrade place a 60-day maximum on GTC orders. Capturing these nuances are critical for active investors who want to minimize the drag from trading on performance.
In addition to avoiding liquidity-killing orders, learning different order types, especially limit orders, protects traders from excess risk. With a limit order, you can set a “buy price”—the maximum price you are willing to pay. It more importantly fixes a “sell price” at the minimum price you’d be ready to take.
“Limit Orders Can Limit Risk A limit order establishes a “buy price” at the maximum you’re willing to pay, or a “sell price” at the lowest you are willing to receive. Placing limit orders instead of market orders can reduce your risk of receiving an unexpected execution” – source: [“Limit Orders Can Limit Risk”]
If you are new to high-speed markets and unfamiliar with trading strategies, never fear! You may reach a telephone agent by calling 1-800-TRADERS for additional instruction and assistance.
The introduction of higher margin requirements reflects the broader trend of increased volatility across various sectors, prompting investors to adapt their strategies accordingly. The constantly changing landscape of the stock market means that investors must stay alert and educated on new conditions and new needs.