No less than the Chairman of the SEC has indicated, changes in the cost and ease of trading stocks should not lull investors into a false sense of security or encourage them to trade too quickly or too often. He also recommended the use of limit orders rather than market orders when submitting a trade in a “hot” stock. The Chairman also described the risks inherent in margin purchases, especially for “hot” stocks in volatile markets.
A study for the National Association of State Securities Administrators (NASSA) concluded that the “risk of ruin” for day-trading accounts, that is, the probability that an investor could lose all of his or her trading capital was close to 70%. While not many customers of on-line accounts are day traders, trading on-line compounds the risks associated with price fluctuation where investors may believe they have current prices but may not.
Frequent problems customers have encountered with on-line brokers include the following:
- Order Failure – where orders are not executed. Failure to obtain a proper “fill” of the order and market orders that are executed extraordinarily far above the price expected.
- Excessive Volume Problems – Where the on-line firm cannot properly handle the volume of business.
- Margin accounts are given often indiscriminately to all customers with inadequate risk disclosures. Industry rules including NASD Notice To Members 99-33 require limitations on the availability of margin for certain stocks and accounts.
The marketing of on-line trading makes many promises. The on-line firms tout “high-quality trade executions”, “savings on margin rates”, and “market orders executed and confirmed electronically within seconds”.
Investors rely upon these promises. Unfortunately, what is delivered is often quite less than meets the eyes of the customer. The moral of the story is that on-line trading may not be for everyone.
For more information about how to recover your assets from investment fraud by a financial advisor or brokerage firm, contact Attorney Howard Rosenfield at 860-677-4334 or email firstname.lastname@example.org. Attorney Rosenfield is also available to speak on specific subject matter topics related to investment fraud.