Advice on Trading In Fast-Moving Markets
In fast-moving markets prices can change really quickly, especially the prices of "hot" stocks, which can drop or soar suddenly. In such conditions, when many investors trade at the same time, delays can develop. Reports of stock prices may lag behind the actual prices and trade executions and confirmations may slow down. Thus, investors can lose a lot of money very quickly.
This article will provide you with some advices on how to protect yourself from unexpected losses in fast-moving markets.
Trade execution is not always instantaneous and no regulations that require a trade to be executed within a set period of time.
Many investors count on the wrong perception that their order will be executed immediately after they press the enter button. However, this is not the case. While typically trade execution is seamless and quick, it is not instantaneous and takes some time.
Additionally, some problems may occur that may slow or prevent the orders from reaching their destination. Here are some possible problems in online trading:
- The broker-dealer can have inadequate hardware.
- The investor can have a slow or faulty modem, computer, or Internet Service Provider.
- The Internet traffic can be heavy and slowing down overall usage.
Have in mind that Securities and Exchange Commission does not have regulations requiring instantaneous trade execution or execution of trades within certain time.
Investors should know their options for placing a trade when they are unable to access their accounts online.
You may have alternatives for placing trades such as faxing an order, touch-tone telephone trades, or talking to your broker over the phone. Make sure what alternatives for placing trades your trading firm offers. Also check whether using such different options will increase your costs.
Investors should set price limits (limit orders) on fast-moving stocks.
Limit orders (orders to buy or sell a security at a certain price) will prevent selling or buying a stock at a price that is lower or higher than you wanted. A sell limit order can be executed only at the specified limit price or higher, while a buy limit order can be executed only at the specified limit price or lower.
Have in mind that your limit order may not be executed since the market price may too rapidly surpass your limit before the order is filled. However, using a limit order will protect you from buying a stock at a price that is too high for you.
Finally, to protect yourself from losses in fast-moving markets you should always know what you are buying, what the risks of your investment are and how trading changes in the conditions of a fast-moving market.
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