Fast market risks

Price quotes may not be accurate-prices and trades move so quickly in a fast market, there can be significant rice discrepancies between the quote you receive one moment and the price at which your trade is executed the next. Remember in a fast market environment, even real-time quotes may be far behind what is currently happening in the market. In addition, the number of shares available at a certain price (known as the size of a quote) may change rapidly, affecting the likelihood of a quoted price being available.

Market order execution price may differ from your quote-during a fast market, orders are submitted to market makers and specialists at such a rapid pace, there is likely to be a backlog that can create significant delays, sometimes exceeding thirty minutes. As a result when you place a market order under these conditions, the quote you receive is more an indication of what has already happened in the market than an indication of the trade execution price you will receive. Market orders are executed on a first-come, first-served basis. In the short time between when your order is placed and when it is executed, other trade orders already in line ahead of yours can affect the stock price. Finally, when a stock is trading in fast market, a market order cannot be changed or canceled once the stock begins trading.

Delays in trade executions and/or trade reports-There may also be delays in trade execution and/or trade reports due to the sheer volume of trades being processed in a fast market. To avoid creating duplicate orders, you should consider these delays and the chance that your trade order has already been executed but not yet reported, before placing a change or change/cancel order. Change or change/cancel orders do not expedite trade reports when a stock is trading in a fast market. In fact, they have the opposite effect by cluttering the trading systems with more information to process.

Limit Orders can reduce your risk

When you consider placing a trade in a fast market, making the choice to place a limit order will establish a buy price at the maximum you're willing to pay, or a sale price at the lowest you are willing to receive. Limit orders in a fast market will reduce your risk of receiving an unexpected execution price. In addition, a limit order allows you to place an order at the price level you're most comfortable with when buying or selling a security. Although a limit order does not guarantee your order will be executed, placing a limit order does guarantee you will not pay a higher price than you expected.

FINRA Notices

Delays

High volumes of trading at the market opening or intra-day may cause delays in executions and executions at prices significantly away from the market price quoted or displayed at the time the order was entered. Many firms and Market Makers are manually entering orders or reducing their size guarantees during periods of volatility, resulting in possible delays in order execution and losses.

Types of Orders

Firms are required to execute a market order fully and promptly without regard to price. While a customer may receive a prompt execution of a market order, the execution may be at a price significantly different from the current quoted price of that security. Limit orders will be executed only at a specified price or better, and while a customer receives price protection, there is the possibility that the order will not be executed.

  • IPOs - initial public offerings
  • Hot Stocks - those that have recently traded for a period of time in fast market conditions
  • Fast Market Stocks - those in which the price of the security changes so quickly that quotes for a stock do not keep pace with the trading price of the stock. In cases of
  • IPOs, Hot Stocks or Fast Market Stocks, customers