Stocktake: Traders need to be careful in volatile markets

Safer to use limit and stop-loss limit orders, which help you control worst-case price

Order types aside, it’s also obvious that traders need to take smaller positions right now. Photograph: iStock

Order types aside, it’s also obvious that traders need to take smaller positions right now. Photograph: iStock

 

The recent volatility is a godsend for traders who like to nip in and out of stocks, but huge market movements bring danger as well as opportunity, which raises the question: how should traders handle markets right now? Exchange-traded funds (ETF) provider Wisdom Tree last week cautioned against using market orders in a fast-moving market. Market orders are filled at the best available price. They get you in and out fast, but not at a specified price; if prices are moving quickly, you might end up buying or selling for a very different price than you intended.

Similarly, traders use stop-loss orders to minimise potential losses, but such orders can become market orders once triggered, meaning the trade could be executed at a price that is way below your intended selling price.

Accordingly, it’s generally safer to use limit and stop-loss limit orders, which help you control your worst-case price. Of course, there is also potential downside here, as your order may not be filled and you might end up chasing the market. Order types aside, it’s also obvious that traders need to take smaller positions right now. Markets are seeing more movement in a day than you would ordinarily see in a quarter; if you bet too big and get it wrong, then you may not live to fight another day.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.