3. Market Orders vs. Limit Orders. Many market participants were burned by market orders, rather than placing limit orders and controlling the price they paid. Market orders are orders to buy or sell at the current price, no matter what the price may be. Having a limit order in place puts the control back into your hands by letting you set the price at which you’re willing to buy or sell. If that price isn’t there, then the order won’t go through.
4. Staying On Top of Things. Try to cogitate before placing stop-loss orders on ETFs, put limits on them, and update them if holdings rise in price. Stay well informed and know what you’re getting yourself into. Advisors should know about the dangers of relying on automated trades. Be careful with computer-generated stop-loss orders that sell a position when a security hits a certain price.
Circuit Breakers In Place
The SEC has implemented temporary circuit breakers on all S&P 500 stocks in an attempt to prevent similar occurrences in the future.
The system works like this: The circuit breakers will pause trading in those stocks for five minutes if the price moves by 10% or more in a five-minute period. The circuit breakers will apply both to rising and falling stock prices.
The circuit breakers will help control any unfair trading and keep electronic trading platforms moving smoothly. SEC Chairwoman Mary Shapiro has suggested that the growth of electronic trading, which in some cases makes it possible to execute trades of thousands of shares a second, could be putting investors at a disadvantage.
The new circuit breakers are on a trial basis, which will run through Dec. 10, 2010.