- Conditional orders are a great add-on, however, they come with few practical challenges.
- Traders need to ensure enough cash availability and actively manage their orders to avoid incurring losses from the order.
- With little vigilance and knowledge about the functioning of a conditional order, a trader can stay ahead of the curve.
Previously, we had discussed how a trader, especially amateurs, can build confidence while making their attempt at stock trading via placing conditional orders. These orders assist traders by allowing them to plan trades in advance and worry less about having no control over minimising losses.
Access the previous piece at DON’T MISS! The secret sauce to building confidence in stock trading.
Now, let us move to few other important aspects surrounding conditional orders to further sharpen your trading skills.
Ensuring cash availability
Once a conditional order is placed, it is sent to OpenMarkets once the trigger is met. At times, the order is not accepted even at the point where the order is triggered. This happens due to the availability of less cash to execute the order.
Therefore, a trader must ensure the availability of enough cash at the time an order is being triggered, as funds are not ‘held’ only after the order has been placed.
Likewise, if a trader has sold the stock already, then the sell order shall fail too.
Ensuring orders remain active
Prior to the placing of orders in the market, all conditional orders are reviewed by OpenMarkets. In some cases, this review is carried out by a Designated Trading Representative, but generally done through electronic means.
An order is not reviewed until it is placed, which depends upon meeting the trigger condition. This means that there are chances that an order can be rejected at that time.
Marketech, ASX themselves or OpenMarkets can remove, cancel, or reject an order at any time. Therefore, a regular review of one’s orders is a must to make sure they remain active.
Technology can be a drawback
As per conventional wisdom, everything has its pros and cons, so does technology. Although technology offers great convenience to traders, it also is prone to several glitches.
There is no surety whether the internet or the stock market is functioning properly at the time an order is placed, or when the trigger event happens.
Marketech has around two decades of history in developing and designing stock trading platforms. The Company operates its technology on the best-endeavours basis and gets rid of any technical problem that may pose a challenge for traders as fast as possible.
However, this does not guarantee that an order will be triggered or losses shall be covered as a lot depends on technological outages or failures. This, therefore, calls for regularly reviewing one’s orders to make sure these orders operate in an anticipated manner.
Stuck in the queue
Traders need to understand that stocks may not essentially trade at every price. This is because in some situations, the price that a trader desired to ‘sell down to’ or ‘buy up to’ may be bounced over, leaving the trader in the queue.
For example, The ASX undergoes losses following cues from the US markets, which were down heavily overnight. One has a trigger placed at AU$6.35 and a sell down at $6.30, but the market opens below the sell down to price at AU$6.20. In such a situation, the sell order placed by the trade shall remain in the queue in the market at AU$6.30.
This situation might frequently occur due to several reasons, like after a trading halt or in the event when a stock is declining very quickly.
Has your order been skipped?
The conditional orders are sequenced on the basis of the time they were placed, and the ASX market reflects orders for buyers as well as sellers in the ‘market depth’.
A trader’s order may be behind numerous buyers and sellers when an order is placed at a certain price point. Since those traders placed the order first, they now have priority in the queue. Moreover, the stock may trade at that price but may not clear all the orders lined up ahead of the trader.
Traders can observe their orders in the ASX market depth by simply clicking on the price point. Moreover, a trader’s order is highlighted in the market in bold if they have an active account.
Overall, trading through conditional orders requires traders to be vigilant as there are challenges to this trading method. These seem to be uncontrollable challenges, which cannot be completely eliminated. However, with little vigilance and actively tracking orders, one can avoid possible losses, or even benefit from any new development lifting the mood of the market.
You can always take a free trial of Marketech Focus here.