When placing a limit order, the funds are taken off your balance and held till the limit order is executed.
My question is, why are the funds taken off the balance beforehand? Is it a measure to limit abuse?
The problem I face is that since the funds are taken off the balance, those funds are not raking up interest while held for execution. And that limit order may never execute if it’s extreme (or in any case, it may take a long time) so that could essentially be a huge loss on interest. Obviously, I’m referring to folks who have enabled interest on cash.
I would prefer (why wouldn’t I?) that no funds are taken/held when placing a limit order but instead the funds are taken only upon execution. If no funds are available or the funds are not enough to cover the order at the time, then the execution fails and the order is closed.
That would be the logical expectation from my side but perhaps I’m missing something. I’m pretty sure it’s related to the order book, which is fundamental for fair trading but I would love to hear from someone who knows
What exactly are you suggesting?
Obviously, you can’t be allowed to open orders if you don’t have the funds or collateral to back them up. So the required amount of your free funds/stocks/etc. needs to be somehow “locked” for given order.
Otherwise you could open endless amounts of orders without actually being able to enter such positions when they get executed.
Look at it from the other side:
How would you like it when you go sell your shares and would hit orders failing to execute over and over because there’s no actual money behind them?
Or vice versa, how would you like your buy orders failing because no shares actually being owned by the counterparty that you try to buy from?
This just makes no sense, it would break the foundation of trading on exchanges and open possibilities for endless abuse.
Perhaps someone from Trading 212 can clarify if indeed the locked funds are not raking interest (which is what I presume is happening) or maybe they do. That would be nice to know.
Yeah, I believe reserved funds don’t generate interest currently - please correct me if wrong.
It would be nice - if possible - to still generate interest until orders actually trigger.
I personally have a few buy orders that aren’t triggered for days, and some don’t trigger at all, and then sometimes I cancel my orders (when price invalidates my entry).
It would be amazing if we could still collect interest on these funds until they’re being used - as technically they’re put on hold only in our accounts. And only when triggered do the funds get exchanged for the stock.
I’m just not sure how funds are being managed in the backend by T212 when they cahnge from unused funds to being reserved for orders.
(When submitting an order & funds go from free to reserved) does T212 take the funds from the bank accounts & QMMFs they hold them in and transfer them in a separate account from which orders are submitted from? Perhaps. Hence why these accounts would not accrue interest. But I’m only guessing.
