The unprecedented "flash crash" in the market two weeks ago highlighted the delicate nature of trading securities in today's financial markets dominated by program and "high frequency" trading.

 

I've written before about why I love Folio Investing's unique online trading platform.  Here are several features of their technology that can help protect you from trading mishaps:

 

1)  No margin.  Folio will not execute a trade if you don't have money in your account to cover it.  This is a vast departure from many firms that let you "buy now and pay later."  This serves as a safety mechanism against your inadvertently placing a trade in error.

 

2)  Trades are based on models and percentages, not dollars and shares.  Converting from percentages to dollars and dollars to shares and then manually entering each trade is highly prone to human error.  Folio's system is much more efficient resulting in less potential for human error.

 

3)  Window trades are converted from dollars to shares at the time the trades are executed, not when the trades are placed.  This means you can place the trades after market hours without having to worry about after-hour market price movement (this does not, however, protect you from possible market movement or volatility if your trade is sent as an unqualified market order as many of Folio's window trades are-- see #6 below for an additional protective measure).

 

4)  Window trades are "crossed," when possible, among multiple Folio clients.  In these cases, you get a better trade execution without the order being sent to an exchange.

 

5)  Window trades are "batched," when possible, across multiple Folio clients.  Large trades are then sent to market makers on a "not held" basis in an attempt to gain execution at the average price for that window period.  This works to protect you against trades that might "move the market."

 

6)  Folio's platform allows you to set a "cancel limit threshhold."  When set, this feature will automatically cancel any window trade if the aggregate order "moves against you" by a certain percentage between the time you place the order and the time the next window closes.  This essentially serves as a personal "circuit breaker" to keep you away from highly volatile trading conditions.

 

Whether you use Folio or another brokerage firm, there are risks inherent in trading ETFs.  If you do not understand or are not comfortable with the risks that ETFs pose, you should consider investing in traditional mutual funds instead.