India's stock market is witnessing record trading volumes where new investors are entering to make profits on several instruments. It is called the fact that the stock market is a volatile place and creates the price change owns to supply levels and different demand.
However, the new traders and investors are unaware of the same phenomena that force them to incur huge losses in the stock market in a few seconds. One such process is freak trades in the stock market.
In this article, we are going to tell you about the freak trades. Keep reading the article to know why freak trades happen in the stock market.
What Do You Mean by Freak Trades?
The stock market of India witnessed several surprise concerns about security prices. A freak trade is the process of the stock market where the price of a stock market investment instrument, like equities, options, etc., suddenly falls or rises for a few seconds only to return to the original price level.
Such types of freak trades happen in the stock market and become the most common with the consisting of the stock market indices. For instance, the freak trades force investors to experience a high volatility level where they either earn or lose a certain amount because the price of securities is falling to surprising lows.
Hence, the freak trades do not always help the investors because they are highly negative and force them to incur hefty losses.
Trigger of Freak Trades in Stop Loss Market Orders
All the investors use the stop loss while placing the buy order in the stock market.
- A stop loss in the stock market works as a mechanism where the securities are sold automatically as the set of stop loss limits is triggered. It means that the price of the current security reaches to set of stop-loss prices.
- One of the top negative factors of freak trades is the triggering of stop-loss orders.
- If the security price falls or rises unexpectedly, it may trigger the stop loss order, where it will be highly liked for the order to execute away from the last trade prices.
How the Freak Trades Happen
Although rare, freak trades happen in the stock market for various reasons, like human mistakes or technical glitches. Here are a few reasons freak trades are happening in the stock market.
- Manual mistakes
These blunders happen when traders or investors make mistakes during the execution of stock market orders.
- Technical glitches
They occur when the algorithm is used to place orders that witness a few coding problems, resulting in bad trade execution.
- Stop loss orders as market orders.
When stop-loss orders are placed as market orders, the investors and traders are usually away from the screen without monitoring the market's volatility.
Traders and investors in the stock market must be cautious of freak trades as they force investments to lose certain values quickly.