Stop and Heed 10 Trading Best Practices

By Craig Morningstar and the Portfolios Services team

As if portfolio management wasn’t already a risky business, a volatile market such as the unprecedented one we are facing today, is likely to see wealth advisors fall victim to a substantial increase in trade risks. In today’s unpredictable environment, custodian systems are running slow, markets are delayed and oftentimes, advisors are rushed, placing blocks of trades for groups of clients. Before one trade’s Order Status is displayed, advisors are quickly on to the next…or worse, they mistakenly duplicate a trade they’ve already sent.

Unfortunately, most trade problems don’t have a happy ending. Almost all trade problems, however, have a similar combination of missteps. These occur, particularly during high volatility markets, because advisors have simply stopped paying attention to trading best practices. In fact, when we receive trade support calls, they typically begin with, “I’m not sure what happened, but.…”

The Dynamic Portfolio Services team handles thousands of trades for our managed portfolios. They’ve been able to execute with volume and accuracy by following a stringent set of trading best practices that have become so ingrained, they are habitual.

So, before you push the Send button on your next trade, stop and be mindful of these top 10 trading best practices to develop successful trade habits:

1) Have a plan. Designate a dedicated time of day to perform trades or rebalance. Rarely, is it in your or your client’s best interest to trade at the last minute or on an impromptu basis.

2) Don’t trade right at the open or close. Trade in the middle of the day; try to avoid Monday and Friday.

3) Remove distractions. Implement a “Cone of silence.” Don’t take calls or respond to text messages. Make sure you don’t have any appointments scheduled during your designated trading times.

4) Keep a trade log. With custodian trade systems running slow, don’t count on the Order Status screen to be your trade blotter. Track your trades placed, executed, and orders filled. And make a habit to always review your trades against the log the next day—the reconciliation step is critical!

5) Don’t submit trades twice because you don’t see the first trade submitted. With slow custodian systems and slow market executions, all trading activity and reporting is slow to show at custodians. Tracking orders reduces the likelihood of order duplication.

6) If you use a bulk trade rebalance tool, make sure you don’t duplicate trades by having the same account assigned to multiple portfolio models by accident. Also, ensure that there are no restrictions in the accounts you are trading, before you trade, as you will not be able to allocate your trades correctly.

7) Fully read and understand all edits any trade system is displaying, particularly if you have seen them many times before. When reviewing edits, apply the “Stop, look and hands off the mouse and keyboard” rule. Double check that everything looks and feels right.

8) Be mindful of technology delays. Custodian technology delays bear repeating and can include: 1) A gap between a trade being sent and the trade reflecting on the client account order status screen. If that happens, do not send the trade a second time. 2) Block trade allocations may not be processed until market close, or the next morning. 3) Some mutual fund trades are showing up entered the following day with “as of” trades.

9) Avoid placing buy and sell trades on the same day. With markets rapidly changing throughout the day, it’s prudent to place sell trades on one day and buy trades the next day. This helps so accounts are not overspent.

10) Check asset and account values at the custodian. In today’s environment, substantiate account values via a live feed that reflects intraday trading activity, contributions or distributions throughout the day. Check before you trade.

It’s important to remember that small trade problems can turn large very quickly. Implementing these best practices serve as a reminder, providing us with an appreciation for consistent thinking and developing trading habits that greatly increase the likelihood of error-free trading.