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How Can Investors Avoid Risks Due to Slipups in Placing an Order?
2010-11-24

 

Firstly, efforts should be made to avoid the wrong direction when placing an order, namely, to buy or to sell. Due to the short mechanism of stock futures, transactions can be concluded whether you place an order to buy or sell a warrant when you open a position. For example, an investor, who predicts a rise of the price and wants to place an order to buy a warrant, sells the warrant by mistake. Despite the investor’s misconduct, the trading system will accept the order and conclude the transaction. This is the operational risk for investors. Therefore, futures trading investors, especially those first-timers, should remind themselves of the direction when placing an order.

 

Secondly, efforts should be made to avoid the wrong amount when placing an order. The minimum placing amount stipulated in “CSI 300 Stock Index Futures Contract” is one lot, which equals one contract. But in the current cash trading of stocks, the unit of “share” (100 shares are equal to 1 lot) is adopted for placing an order, though sometimes “lot” is also used as the unit to describe the turnover in statistics. Therefore, even veteran investors of stock trading should be careful in trading stock index futures.

 

Last but not least, do not mistaken “open a position” for “close a position” and vice versa. To open a long position is to place an order to buy to open a position while to close a long position is to place an order to sell to close a position. To open a short position is to place an order to sell to open a position while to close a short position is to place an order to buy to close a position. If an investor wants to close a position but places a wrong order to open the position, an extra margin is required for opening a new position, which will ultimately increase the risks in fund management.