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In the eighties, the Indian investor bemoaned the lack of financial infrastructure to access the financial markets. It took ages to get through your broker place the order, then wait for a confirmation, then the shares took for ever to return from being transferred, etc.etc. It was a long harrowing process. But come the internet age and the advent of on line paper less trading, these hurdles are a thing of the past. So one can just log on and enter the market. But before you click your mouse, remember that just the infrastructure availability will not turn you into a successful investor. You still need to do a lot of homework before you log on and execute. In fact the risks of investing are higher in a fast moving market.

Investors trading over the Internet or online, who are used to instant access to their accounts and near-instantaneous executions of their trades, especially need to understand how they can protect themselves in fast-moving markets. In fast markets, when many investors want to trade at the same time and prices change quickly, delays can develop across the board. Executions and confirmations slow down, while reports of prices lag behind actual prices. In these markets, investors can suffer unexpected losses very quickly.

You can limit your losses in fast-moving markets if follow these simple ground rules:-

Research it:

Know what you are buying and the risks of your investment. Although online trading saves investors' time and money, it does not take the homework out of making investment decisions. You may be able to make a trade in a nanosecond, but making wise investment decisions takes time. Before you trade, know why you are buying or selling, and the risk of your investment. Do your research carefully about the company, industry and general micro and macro trends which will impact the scrip.

Set Price Limits:

Set your price limits on fast-moving stocks: market orders vs. limit orders. To avoid buying or selling a stock at a price higher or lower than you wanted, you need to place a limit order rather than a market order. A limit order is an order to buy or sell a security at a specific price or range. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. When you place a market order, you can't control the price at which your order will be filled. Remember that your limit order may never be executed because the market price may quickly surpass your limit before your order can be filled. But by using a limit order you also protect yourself from buying the stock at too high a price.

Realise the Technical Realities:

Know how trading changes during fast markets and take additional steps to guard against the typical problems investors face in these markets. Online investing takes time, it is not always instantaneous: Investors may find that technological "choke points'' can slow or prevent their orders from reaching an online firm. For example, problems can occur where an investor's modem, computer, or Internet Service Provider is slow or faulty; a broker-dealer has inadequate hardware or its Internet Service Provider is slow or delayed; or traffic on the Internet is heavy, slowing down overall usage. A capacity problem or limitation at any of these choke points can cause a delay or failure in an investor's attempt to access an online firm's automated trading system.

Build in Alternatives:

Most online trading firms offer alternatives for placing trades. These alternatives may include touch-tone telephone trades, faxing your order, or doing it the low-tech way -- talking to a broker over the phone. Make sure you know whether using these different options may increase your costs. And remember, if you experience delays getting online, you may experience similar delays when you turn to one of these alternatives.

Confirm, Confirm and Confirm:

Do not assume completion: Some investors have mistakenly assumed that their orders have not been executed and place another order. They end up either owning twice as much stock as they could afford or wanted, or with sell orders, selling stock they do not own. Talk with your firm about how you should handle a situation where you are unsure if your original order was executed. The same goes for order cancellation. If you cancel an order, make sure the cancellation worked before placing another trade. When you cancel an online trade, it is important to make sure that your original transaction was not executed. Although you may receive an electronic receipt for the cancellation, don't assume that that means the trade was cancelled. Orders can only be cancelled if they have not been executed. Ask your firm about how you should check to see if a cancellation order actually worked.

Know the Rules:

If you trade on margin, your broker can sell your securities without giving you a margin call. Now is the time to reread your margin agreement and pay attention to the fine print. If your account has fallen below the firm's maintenance margin requirement, your broker has the legal right to sell your securities at any time without consulting you first. Some investors have been rudely surprised that "margin calls'' are a courtesy, not a requirement. Brokers are not required to make margin calls to their customers. Even when your broker offers you time to put more cash or securities into your account to meet a margin call, the broker can act without waiting for you to meet the call. In a rapidly declining market your broker can sell your entire margin account at a substantial loss to you, because the securities in the account have declined in value. Also as regards the speed of execution, no regulations require a trade to be executed within a certain time. There are regulations that require a trade to be executed within a set period of time. But if firms advertise their speed of execution, they must not exaggerate or fail to tell investors about possibility of significant delays.

Regulatory authorities can do everything they can to protect and inform investors during this time of great innovation and change. But investor protection - at its most basic and effective level - starts with the investor. In this day and age, there simply is no substitute for a person's awareness and wariness. So investors will do better in this fast moving environment if they are prepared and have done their homework before clicking away.  

Aru Srivastava

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