Take the 2-minute tour ×
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It's 100% free, no registration required.

I'm following an automated trading system. It gives me buy/sell signals periodically. I usually just add/subtract 0.5% from the current price (as reported by Google Finance) and buy/sell.

Last Monday, I did the same, but apparently the stock I was trying to sell fell in price quicker than my broker could sell it at my limit price. It fell about 3%. I wouldn't have minded selling at 1%, 2% or, frankly speaking, any percent lower. I just don't wanna hold on to it.

So, should I just use market orders instead of limit orders? Will it cost me more money to use market orders than limit orders with my current +/- 0.5% formula?

share|improve this question

2 Answers 2

up vote 4 down vote accepted

If you want your order to go through no matter what then you should be using market orders rather than limit orders. With limit orders you may get the price you are after or better but you are not guaranteed to get your order transacted. With a market order you are guaranteed to get you order transacted but may get a price inferior to what you were after. Most times this should only be a few cents but can get much larger in a fast moving or less liquid market. You should incorporate this slippage into your trading plan.

Maybe a better option for you, if you are looking at + or - 0.5% from the last price, would be to use conditional triggers (stop buy and sell orders) with your market orders. Once the market moves in your direction your conditional order will be triggered and the stock will be bought at current market price.

share|improve this answer
2  
Usually, I'm not after any price. I just wanna sell within the first 30 minutes of market open and I wanna get the most money I can get, which I guess is unrealistic of me to expect. Getting rid/acquiring the stock is more important to me. Stop orders look interesting, but maybe difficult to setup with my current broker and I don't have time to monitor my stocks. I just wanna get these periodic trades done with. I'll just use market orders from now on. Thanks so much! –  MK Safi Mar 12 at 10:04
1  
@MKSafi - I am in the same boat - I don't like to be monitoring the market all day. I view the market at night about 9pm, and if I need to put any orders in I put them through then using stop buy orders with either market orders or limit orders. If going for a buy I will place a stop buy 1 cent above the prior days high. If the stock goes above this the next day I want to buy it, if it drops in price I don't want to buy it. I then place an automatic trailing stop loss at 15% below the stocks highest close. –  Victor Mar 12 at 10:21
1  
@MKSafi, it sounds like your scenario is perfect for market orders. However, I would say your limit strategy of +/- 0.5% last price will be immediately filled nearly all the time. So maybe stick with that and in the rare occasion when it doesn't fill immediately, cancel and replace with a market order or another limit order. –  Craig W Mar 12 at 15:10

The Key aspect is the risk of market orders;

  1. On highly traded stocks a few minutes after opening of market, there should'nt be much of an issue.
  2. On stocks that are not traded frequently, there are people who would put a limit order at unrealistic prices, just to make quick money from people who blindly put market trades.
  3. Just at the time of market opening, even on highly traded stocks, there could be few unrealistic limit order trades that will be up in queue before activity begins.

You should be worried about point 2 & 3 when you are doing market orders.

share|improve this answer
1  
That is why I would combine market orders with stop-buy or stop-sell orders, that way they would only be triggered when the price your after is reached (at least within a few cents). –  Victor Mar 12 at 11:53
1  
Yea, I have always been cautious about your second point, and as a result I tend to place a limit order a few cents below the current Bid price. It reacts like a market order, but you avoid the risk of getting ripped-off. The same is true for purchases: some people try to sell their stock for an exorbitant price to catch "market buy orders". You might inadvertently buy stock way above the market price. –  mlathe Mar 27 at 17:56

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.