In today’s stiffening evolving financial environment, traders have greater challenges when entering a fast market. Rapid price changes can happen in just a moment, rendering real-time price quotes more and more inaccurate. This article will address the impact of trading within these conditions, such as execution delays, order management, and margin requirements.
A more frenetic market where price swings are falls deep and moves to heavy selling. Traders are least likely to fully get across their intended order price and/or market quote in these market-making environments. This difference poses risk to their trading strategy and decision making. For instance, if a trader is placing an order to buy 10,000 shares at a market price of $5, the execution price can vary significantly. This change can be particularly sensitive to market conditions and liquidity. This discrepancy occurs because the order can’t be executed right away due to the high speed of the market.
Once an order is submitted it goes into a queue waiting to be executed. Market orders are filled on a strict first-come, first-served basis. That is to say if there are bigger orders on the queue, they will get filled before your order gets filled. This creates room for abuse where a single large order is executed across multiple blocks at varying price points. For instance, an order for 10,000 shares could fill as 2,500 shares at $5 and 7,500 shares at $10.
Fast markets are extremely volatile. This introduces the possibility of significant adverse changes to the market between what a trader receives as a real-time quote and what a market maker or specialist fills an order at. As a result, active traders need to be ready for additional price volatility that will impact their performance.
Additionally, quick markets usually lead to piles of unfulfilled orders. When so many traders jump in to buy or sell, penalties can add up, adding even more confusion to a breakneck trading day. Caution and vigilance will be very much needed as traders work through these circumstances to avoid adverse surprises.
One additional element worth considering in rocket-ship markets is the steep margin maintenance penalties applied to selected shares. Internet, e-commerce and high-tech companies tend to be more volatile by nature, and thus face tighter margin requirements. Other collateralized equities have upfront and maintenance stipulations as high as 70%. Traders need to understand these requirements as they seek to manage the risks of their portfolios.
Customers who need more information about margin maintenance should call 1-800-TRADERS for questions regarding specific stocks. Only by having a clear understanding of these dynamics at play can one engage in dynamic, fast-moving markets and avoid unpleasant surprises.
For those who do not want to brave uncertain waters alone, there are other options. If you don’t understand the risks associated with fast markets, please contact a phone agent at 1-800-TRADERS. They’re prepared to support you execute trades and deepen your understanding! This personalized service provides traders with another layer of protection when attempting to avoid potential pitfalls.
Additionally, it is worth mentioning that WellsTrade accounts do place certain restrictions on Good Til Canceled (GTC) orders. These orders are restricted in time to 60 days, at which point they’ll be automatically canceled if not yet executed. This is an important timeline for traders to keep in mind when entering orders. By doing so, they’ll be in a better position to maximize on the best trading opportunities.