During extreme market volatility stock prices can change quickly, making orders more difficult to navigate. Here’s an overview of the most common orders and some tips for buying and selling successfully.
- Market Buy orders may not go through when markets are volatile; if you are buying, we suggest using a limit orders with a set price.
- In rapidly moving markets, Markets Sell orders could execute at a significantly lower price than the one you see at execution.
- Limit Orders are not guaranteed to go through. When buying, if the stock price is not equal to or less than the price you set by the end of the trading day, it will be cancelled. When selling if the stock price is not equal to or greater than the price you set by the end of the trading day, it will be cancelled.
- If you’re selling when prices are changing quickly and you choose to place a Limit Order, make sure you set the lowest price you’re willing to accept.
- Orders will only be processed if there is liquidity (aka there are buyers when you want to sell, and sellers when you want to buy), regardless of the limit you set.
- Fractional orders are executed at the end of the day. You may notice a large movement from the estimate provided to the value or quantity of shares when the order is filled. In rapidly moving markets, fractional orders could execute at a significantly lower price or quantity of shares than the estimate given on your original order confirmation.
How we identify a stock as ‘very volatile'
We identify a stock as very volatile when there has been a large, single-day movement in the absolute value of the stock of more than 40% in the past 14 days.
Past volatility is no guarantee of future volatility. With any investment, your capital is at risk. Investors should carefully consider volatility risk and other risks before investing.
If You're Buying
Market Buy Orders
This order type lets you buy a stock immediately at the best available price. All "Market Buy" orders are actually submitted as "Limit Buy" orders with a 5% collar added on top of the price. This protects you from significant upward price changes and to prevent your account from going into overdraft.
If the price increases more than 5% before the order is filled it may get rejected or remain pending. During periods of extreme volatility when prices are changing quickly, pending and cancelled market buy orders happen a lot.
To make sure your trade goes through when prices are volatile, we suggest using a limit order with a set price. More on that below.
Limit Buy Orders
This order type lets you buy a stock at a specific price or better. You can choose the highest price you’re willing to pay and your order will only execute if the market price is at or below that price.
Limit orders are not guaranteed to fill (i.e. if the stock price does not meet your limit price, the order will not execute and will expire at the end of day or when you cancel it).
If You're Selling
Limit Sell Orders
If you're selling a stock, you can choose the lowest price that you're willing to sell and your order will only execute if the market price is at or above that price. Limit orders are not guaranteed to fill (i.e. if the stock price is less than your limit price, the order will not execute and will expire at the end of day or when you cancel it).
Here’s an example: say you want to sell a stock that’s currently valued at $100 and you don’t want to sell it for less than $95. You can set a limit price of $95 and the order will only execute if and when the market price is at or above $95. In rapidly moving markets, the value of the stock could drop below that level by the time you place your order — and as a result will not execute. This is why we suggest choosing the lowest price you will accept if markets are moving rapidly.
Market Sell Orders
Unlike market buy orders, market sells do not have a collar. They will always be executed at the best available price, regardless of how the price may have changed — as long as there is liquidity (aka an interested buyer).
In rapidly moving markets, markets sell orders could execute at a significantly lower price than what you see at execution.