In the world of high-speed, high-frequency trading, time saved is measured in fractions of a second. As seen on-floor in a rapidly-moving market, real-time market quotes can be a dangerous illusion, seriously misleading traders on the actual market condition. This difference of price happens the minute that a market maker or a specialist takes an order. This mismatch can make for a painful endeavor for market participants that are just trying to take on the challenge of sudden, violent price changes.
The nature of market conditions is such that instantaneous changes greatly affect prices, creating hundreds of dollars in price disparity within seconds. For example, an order for 10,000 shares may be done in two 5,000 share blocks. Or, it could be filled as 2,500 shares all at one price and 7,500 shares at another price. This is true even if a real-time market quote indicates that there are 15,000 shares in the market at a given price. These kinds of scenarios illustrate the extreme uncertainty inherent in trading in times of increased volatility.
The NASDAQ exchange is home to over 500 firms that act as market makers, facilitating trades in a fast market environment. The pace at which airlines place and get executed orders can create a queue. Unfortunately, this backlog makes such an efficient trading process even more burdensome. Traders are used to reacting instantly to live market quotes. By the time the market is able to process their orders, that may have changed dramatically.
In these instances, traders might reasonably have expected their orders to have executed at the quoted price. Beyond that, they have to account for the extreme volatility of these stocks. In fact, stocks in the Internet, e-commerce and high-tech sectors usually have more stringent margin maintenance levels. We put these obligations in place to curb the overwhelming amount of activity generated by runaway, high-speed, intra-day trading. Other equities might even cap maintenance margins at 70%.
In a quick, fast market, orders are executed on a first-come, first-served basis. This justifiable practice can raise concerns for those who are not intimately familiar with the harmful effects of abruptly changed trading environments. For traders who are overwhelmed with confusion, a phone agent is still available to assist. They can dial 1-800-TRADERS to get help and direction from TDA representatives before executing a trade.
It’s crucial for all traders to have a firm grasp on the various order types, especially when trading in a volatile market. A stop limit order is different from a stop order in two important respects. These differences had enormous implications for execution, particularly relative to market conditions. Traders must first understand these important distinctions to ensure they trade with an informed mind.
“All or None (AON)” – Wells Fargo Investments, LLC
“Good Til Canceled (GTC)” – Wells Fargo Investments, LLC
“However, it does guarantee you will not pay a higher price than you expected.” – Wells Fargo Investments, LLC