The Compass Institute Presents:

Fast Markets: What Are They And How Can You Protect Yoursr self?

"Fast markets" are in the news. But what does it really mean? What are the dangers of a fast market? How can you protect yourself as an investor?

Compass Securities Corporation is committed to providing you with the essential facts you need for optimal investing. This special edition e-newsletter is designed to make you aware of a potentially serious problem and help you avoid the pitfalls associated with fast markets. We believe that an informed investor is a smart investor-- - so take a few minutes to read on.

It's an event that's becoming increasingly more common: a hot new technology company goes public. Within minutes of opening the Initial Public Offering (IPO) on secondary markets, investors from around the country are online trying to get a piece of the action. With only a Llimited number of shares of the small company available, the stock price skyrockets.

Or there's the opposite scenario: a popular stock disappoints investment analysts or fails to meet projected earnings. By the close of market, its stock price has been sent tumbling by investors eager to unload it from their portfolios.

Putting The Brakes On Fast Markets

Up and down, volatile stocks have been spiking in both directions - sometimes as much as 10% to 50% -- in the course of a day or even in a few hours. While this kind of fast market activity has spelled success for some investors, it has meant disastrous results for others.

In a fast, high-volume trading environment, the price of a stock can change so quickly that, by the time a real-time quote on the computer screen is updated, it's already history. The result can be market order execution prices drastically different from what an investor expected.

A Fast Market In Action

How It Starts

· News about a company hits the wires, like: An Initial Public Offering (IPO)

· Change in a company's earnings - -positive or negative Recommendation by an analyst or publication

Trading Gets Heavy

· Internet, phone and broker orders pour in.

Order Executions Are Delayed

· The balance of trade orders is upset with more " buys " than " sells or vice versa.

· Orders are placed so fast, a backlog may develop --- sometimes 30 minutes or longer.

· Trades are lined up in a queue and executed in the order received.

Systems Can Overload

· Market Makers turn off auto-execution trading and revert to manual execution of trades on a "best efforts" basis. The trading process slows down and the "reasonable time" it takes to execute trades can vary greatly.

· Orders are often subject to partial fills at various prices.

· Trade reports are delayed, so investors checking their accounts don't know if their trade was executed. Trying to change or cancel orders may result in duplicate orders or arrive too late to halt the trade.

· Sometimes volume is so heavy that access to brokerage websites can slow down or be unavailable.

Prices Fluctuate

· Price of the limited numbers of shares available can change quickly as demand grows.

· Trade orders executed first in the queue- can influence the -price- of subsequent market orders waiting behind them.

· Quotes--es - including real-time quotes-- - can't keep up with the huge trading volume and lag far behind actual market prices.

By the time a market order is executed, the stock price may have skyrocketed or plummeted far beyond what the investor expected - as much as 50% or more.

What You Can Do To Protect Yourself In A Fast Market

1. Place A Limit Order

When trading a volatile or new stock, you can reduce your risk by placing a Limit Order specifying the maximum you're willing to pay to buy a stock or the minimum you'll accept to sell a stock.

Unlike a Market Order which is an order to buy or sell at the best available price when the order is executed - a Limit Order gives you price protection by ensuring you get your limit price or better. There's no guarantee your trade will be executed at the limit price you specify, but it's the most effective strategy for limiting your risk.

2. Know What You're Buying and Why You're Buying it.

What do you know about the company you're buying? Have you researched it? Buying a stock on impulse or hearsay isn't smart investing. Use the free online company research you'll find at the Research Center on our website to gather the information you need. Be sure the company you're buying a piece of is one you really want.

3. Be Aware Of How The Trading Process Works

Educating yourself about investing is an ongoing process. If you're a new investor or need a review of trading procedures, pick up a book like "The Wall Street Journal Guide to Understanding Money and Investing," take a virtual trip to the New York Stock Exchange on the Web at www.nyse.com (click on Education ), or locate an investing club in your area through the National Association of Investors Corp at www.better-investing.org .You can also call Compass Securities Corporation at 617-969-8636 with your trading questions.

4. Stay On Track With Your Investment Strategy

When you're considering a stock, first see if the company meets your investment objectives. If you haven't formulated an investment strategy yet, now is a good time to start. Begin by determining your goals and your timetable, then choose the investments that will best meet them.

5. Weigh The Risk ... Before You Click

Before you place a Market Order for a volatile stock, ask yourself how much you could afford to lose in the event of sweeping price fluctuations. Don't risk spending more than you can afford.

Timing Is Everything

If you're planning to place an opening Market Order, make sure your order is entered before 9:20 a.m. EST

Otherwise, your order may not queue until after the pre-open is completed. At the end of the day, enter Market Orders at least 1 0 minutes before closing or your order may not be executed.

Market Order, Stop Order, Limit Order.. What's The Difference?

· Market Order is an order to buy/sell as soon as possible at the best price available. In a fast market situation, a Market Order can be very risky.

· Stop Order is an order to buy/sell a stock when the price reaches or passes a specified point. When that happens, a Stop Order automatically becomes a Market Order and is executed at the best price available. In fast markets, however, after a Stop Order hits the point specified and becomes a Market Order, it can keep climbing or drop sharply-- - and ultimately be executed much higher or lower than originally specified.

· Limit Order is the safest way to trade in a fast market because it's an order to buy/sell only at the specified price or better.

Not All Online Brokerage Trading Policies Are The Same For IPOs

When trading IPOs, many online broker/dealers require Limit Orders before secondary trading begins. After the stock is trading on the secondary markets, Market Orders will be accepted. If the stock continues to be volatile, however, we recommend continuing with Limit Orders instead of Market Orders for your protection.

Article content Courtesy of Ameritrade 1999.