Unexpected rise and drop in stocks is a normal thing, typically prices of hot IPOs and high tech stocks remain highly volatile. There are numerous investors trading for minting profits simultaneously, making the stock price movement even more unpredictable. This can lead to unpredicted losses very rapidly.
How to Limit Losses in Stock Trading?
By being aware of your investments and risks included in it; and
Know how fast the trading momentum changes during fast markets and act wisely to guard against the archetypal problems faced in such situations.
Disciplined Approach to Investment Decision Making
Online trading is fast and easy, whereas online investing is a disciplined process, which should be done with proper planning and research. There are quite a few online brokers who offer low execution fees, and one can buy or sell through them just by a click of the mouse. Online trading saves time and money but this does not liberate the investor from doing his homework. One has to do a good study before zeroing down on any decision of investment. Trades can be made in one-tenth of a second, but taking wise decisions is what takes time. You should be sentient of why you are buying or selling and the risks involved in it.
Utilizing the Option of Limit Orders
A limit order has to be placed to avoid buying or selling of any stock at a rate higher or lower than you desire. A limit order helps you in buying or selling a security at a definite price. Hence, once the limit order is placed, a buy limit order can be performed only at the limit price or lower and a sell limit order can be performed at the limit price or higher. When a market order is placed, one cannot control the price at which the order would be filled.
One has to keep in mind that the limit order may not be executed if the market price exceeds the limit before an order is placed. This helps you in preventing from buying stocks at very high prices.
Other Options for Trading other than Online Accounts
Many online trading firms offer different choices like touch-tone telephone trades, faxing your orders, or by directly talking to the broker over the telephone. One can opt any of the options depending on which one is cheaper and comfortable.
Doubling Up on an Order
Some investors place an order and assume that it is unexecuted and place another order. Hence, they end up with double the number of stocks than they wanted to buy and could afford, or with sell orders, they end up selling what they don’t own. One should talk to the firm and learn about managing such tribulations when you are unsure if the order was performed or no.
Check your Cancellation Tasks before Placing any other Orders
It is very vital to verify if the order was cancelled and the trade was not executed. One may receive a receipt of cancellation but one should still ensure that the order was not executed. One should learn by asking the firm how to check if it was executed or not.
No Regulations on Performing any Trade in Specific Time
The Securities and Exchange Commission regulations do not state anything about the time period in which the trade should be carried out. But, all the firms who promote themselves by boasting about their high speed execution should also make their investors sentient about the possibilities of delays.
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