WASHINGTON – While most Americans understand the importance of saving and investing, many do not possess the basic financial knowledge needed to make sound financial decisions, according to a recent study released by the FINRA Investor Education Foundation (FINRA Foundation).
A series of financial literacy questions in the FINRA Foundation’s 2016 National Financial Capability Study revealed that more than half of all Americans surveyed, 54 percent, could not tell which was riskier—investing in a single stock or investing in a mutual fund.
As part of its ongoing investor-education efforts, FINRA has issued an Investor Alert to help investors understand the different types of orders that can be used when making a trade. In general, understanding order types can help investors prioritize their needs, manage risk, speed execution and provide price improvement. Knowing how various orders work and the risks associated with them can be particularly useful at a time when economic and political events domestically and abroad can lead to increased market volatility.
“Understanding the benefits and risks of various types of orders can help investors avoid unintended losses and better ensure trades are executed in a timely manner and at a price with which the investor is comfortable,” said Gerri Walsh, Senior Vice President of FINRA’s Office of Investor Education. “Knowledge is key in helping investors make careful choices to best fit their financial needs and goals.”
The Alert explains that investors have the power to exercise some control over price and timing by choosing the type of order placed. It describes the three main categories of order types: market orders, limit orders and stop orders, and the different forms these orders can take when enhanced with time restrictions and other conditions. The Alert also provides tips on the risks involved with different types of orders. For example, the Alert cautions that stop orders, once triggered, become market orders so, during volatile market conditions, these orders may be executed at prices significantly above or below the “stop price” the investor sets. Like other market orders, the order is guaranteed to be executed fully and promptly at the current market price, but the investor may not like the price he or she gets in a fast-moving market.
“You cannot predict when periods of market volatility will hit, so it is often best to decide what is most important to you based on your investment goals and objectives, whether it be price or making a trade at a specified time,” Walsh said.
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FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.