Many of the emails we receive are questions about trading in a volatile market. There are numerous obstacles that an investor must overcome when participating in this type of environment and it is important to understand the limitations of the system that we use.

Wide price fluctuations and heavy trading characterize volatile markets. These conditions generally arise as a result of an imbalance of trade orders in one direction or another and can occur at the market opening or at any time during the trading day in either the over-the-counter exchanges or the NASDAQ. The markets can be driven by many different factors including news releases, changes in analyst recommendations, Internet news and rumors in chat rooms, adjustments to interest rates, interviews with leading policy-makers or for no reason at all.

Sometimes the sheer volume of trades being processed in a fast market will lead to delays in trade execution and/or trade reports. Prices and trades move so quickly that there can be significant differences between the quote you receive at one point in time and the price at which the trade is executed later. Even real-time quotes will be lagging behind the current market. The number of shares/contracts available at a certain price and the size of the position at the current quote by a market maker can also change rapidly; affecting the likelihood of your order being filled at that previously quoted price.

Market orders are executed on a first-come first-served basis. The high volume of orders that are rapidly submitted to market makers and specialists from many broker-dealers may create a backlog that can cause significant delays. As a result, when you place a market order under these conditions, the quote you get is more an indication of what has already happened than that of the execution price you will receive.

In the time between when your order is placed and when it is executed, other orders already in line ahead of yours can adjust the stock/option price and movement. There are also significant delays between an initial partial execution you receive, which may be an automatic execution, and the subsequent fill of the balance of a larger order, which may be executed manually. Many market makers offer automatic execution for eligible securities up to certain size positions. However, during volatile market conditions, that feature may be modified or suspended for some or all issues. Under those circumstances, delays may result and order executions can occur at prices less favorable than the originally quoted.

If you place a trade order during a volatile market, there is no guarantee that your order will be executed. Entering a limit order merely allows you to establish a buy price at the maximum you are willing to pay, or a sale price at the lowest you are willing to receive. Even when the market moves to your limit price, there is no guarantee that you order will be executed because there may be limit orders from other customers ahead of yours. During a fast market, it is recommended that you don't attempt to change or cancel limit orders. Change or cancel orders do not expedite trade reports in a fast market; they actually burden the system with more information to process. If you enter a change, the broker will process your request on a best-efforts basis and that change will probably result in your order moving to the back of the line.

The safest way to trade in a fast market is to find a dependable broker (there are many!) and make your desires very clear so that they can effectively execute the transaction that you are paying them to perform.