Increased market volatility can result in record setting volume as well as
extreme market conditions (sometimes called "fast markets" or "break out"
market conditions). It is important for investors to understand the risks
associated with such extreme market conditions. Technological advancements
have enabled clients under normal market conditions to receive accurate
real-time market data and to receive execution of their market orders almost
Under volatile market conditions, clients trading Internet or other volatile
stocks may flood their brokers with orders and, in turn, the Exchanges may
experience an extreme volume of orders, typically on the same side of the
market (i.e., all buy or all sell orders). These extreme market conditions
typically result in large order imbalances and systems backlogs, as well as
delayed reporting and increased execution time.
During these volatile conditions, Cobra Trading, Inc. may implement special
order handling procedures to maintain a fair and orderly market and thereby
protect both the investor and the firm from market risk. For example, firms
may suspend automated execution systems and handle orders manually,
executing client orders on a first come first serve basis. While these
procedures are designed to provide orderly execution of client orders in
high volume environments, the result may be a significant delay in
execution. These delays can cause a client's market order to be executed at
a price substantially different from that of the quote given at the time of
order entry. Moreover, the executions of orders entered prior to your order
can significantly move the market and effect the price at which your order
will be executed. Additionally, firms may restrict, again without prior
notice, the types of orders it will accept for certain volatile issues.
Remember that because market orders must be executed as promptly as
possible, it may not be feasible to cancel a market order since it may have
already been executed but not yet reported. Many investors, thinking that
their market order has not been executed, attempt to cancel and then,
thinking that the original order has been canceled, re-enter another order.
This also involves significant risk because frequently the client receives
an unwanted execution of both orders.
It is important to understand the increased risk of volatile markets.
Please see the following sites for additional information:www.sec.gov and www.investingonline.org,
and remember there is no substitute for a sound investment