Author Topic: Limit order vs market  (Read 1004 times)

FiguringItOut

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Limit order vs market
« on: December 10, 2020, 08:03:26 AM »
Is there an advantage of limit order vs market order?

For example, I want to buy shares that are priced at $75 and I believe that the price will increase, but I don't want to buy it it goes too high.

Can I set a limit order at say $80 for a day prior to market opening (before 9:30am) and leave it at that?  Or better monitor that market at opening to see how it's going? 


vand

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Re: Limit order vs market
« Reply #1 on: December 10, 2020, 09:07:38 AM »
A limit order is basically an order left in the market looking to get matched with someone else taking the opposite side of that action IF the price moves to through that level and enough transaction volume at the price you specify happens to move you to the front of the order queue.

In your example there is no reason to place a limit order ABOVE the closing price unless pre-market indicates that the price is going to gap up. Generally you want to place a limit order at the bid price so that you don't have to pay the bid/ask spread. 

FiguringItOut

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Re: Limit order vs market
« Reply #2 on: December 10, 2020, 09:17:45 AM »
Thanks

terran

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Re: Limit order vs market
« Reply #3 on: December 10, 2020, 09:20:16 AM »
Yes, I believe you've figured it out (see what I did there?). I usually set the limit tighter than a $5 window, but if you'd be comfortable paying $80 that's fine. I'd generally be fine paying market price (that's what I do with index funds), but some of the algorithmic trading going on these days can make ETFs do some crazy stuff for short periods of time. I'd hate to catch a spike (when buying) or a flash crash (when selling), so I set limit orders just in case something strange happens to the market when I happen to be trading. It might not be necessary, but it makes me feel better and only takes a second.

EricEng

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Re: Limit order vs market
« Reply #4 on: December 10, 2020, 11:55:19 AM »
Trading market during the day is usually pretty safe.  Don't leave a market trade overnight for opening bell, very good chance of overpaying.  If you want to leave something overnight then a limit is best.

J Boogie

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Re: Limit order vs market
« Reply #5 on: December 10, 2020, 01:34:19 PM »
And if you have a tendency to traffic in thinly traded small caps like me, limit orders are your friend. The spread can be pretty wide on the little guys.

MustacheAndaHalf

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Re: Limit order vs market
« Reply #6 on: December 11, 2020, 03:30:37 AM »
The risk with a market order is the idea that you're buying "at any price".  And with a fresh IPO, that's the time you really find out the meaning of "at any price", so it's not a great time to use a market order.

I'd suggest you figure out what you'd pay... add some FOMO you'll experience watching an IPO frenzy... and set that as your limit price.  If the market price is $60/sh and you have an $70/sh limit order, you'll just match the current market and pay $60/sh.  But if the market instantly hits $140/sh, you won't buy with a limit of $70/sh.

ChpBstrd

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Re: Limit order vs market
« Reply #7 on: December 11, 2020, 02:15:05 PM »
Trading market during the day is usually pretty safe.  Don't leave a market trade overnight for opening bell, very good chance of overpaying.  If you want to leave something overnight then a limit is best.

I agree. I can't think of a scenario where I'd leave a buy order, market or limit, open overnight. I've seen way too many daily charts that show a single transaction way high and then the price crumbles right after that. I think to myself "somebody forgot to close a limit order, and the fastest computer made some money off of them."

I will sometimes let a limit order to sell at a high price sit overnight if it's a volatile asset and I'm ambivalent about it (as opposed to really wanting to get rid of it). This way I try to be the one taking advantage of the person in the scenario above. When it doesn't work I'll sell at the market price, but using a limit order.

celerystalks

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Re: Limit order vs market
« Reply #8 on: December 13, 2020, 10:38:07 AM »
A limit order is basically an order left in the market looking to get matched with someone else taking the opposite side of that action IF the price moves to through that level and enough transaction volume at the price you specify happens to move you to the front of the order queue.

In your example there is no reason to place a limit order ABOVE the closing price unless pre-market indicates that the price is going to gap up. Generally you want to place a limit order at the bid price so that you don't have to pay the bid/ask spread.

Not entirely correct.

A limit order is just that. An order that limits the transaction price.

A limit order that is placed to buy at or above the ask is considered a marketable limit order.  As is a sell limit order at or below the bid.

One reason to always place a marketable limit order is to prevent execution far from the bid ask spread. There is not infinite liquidity at the bid/ask price. Generally there will be an number associated with the bid/ask size such as 1 or 10 or 200 or 4500. This is the number of board lots offered at the bid or ask. So for instance lets say the bid is 75.05 bid size 1 and the ask is 75.10 at size 2. This would imply that the market maker has someone willing to buy 100 shares at 75.05 and sell 200 shares at 75.10.  But without level II quotes, which show the next available prices and lot sizes standing behind the best available, a casual buyer or seller should be very careful placing a market order to sell or buy 1,000 shares given this quote with very low bid/ask sizes represented. This is because the level I quote does not show all the prices that would be paid or received to fill the whole 1,000 share order. If a market sell order is placed for the 1,000 shares, the next 300 shares after the first 100 sold at 75.05 might fill at a price of 74.75, and then the final 600 shares might be at 74.35 as the market maker fills against the best available bid orders as quickly as possible. Add in HF traders and it is possible to significantly over/under pay on a market buy/sell order.

Likewise if someone wants to buy or sell less than a board lot, there is no requirement for the market maker to honor either of the bid/ask offered on a full board lot. Again the execution price can be limited using a limit order.

Generally when I place a trade for my emerging market ETF, I place it as a marketable limit order with an all-or-none restriction. If the trade doesn't execute in a few minutes I incrementally revise the price up or down until it goes through. I may have to pay a cent or two extra per share. But I donít get surprised like I have in the past with market orders or partially executed limit orders.

seattlecyclone

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Re: Limit order vs market
« Reply #9 on: December 13, 2020, 02:00:23 PM »
Yes, I believe you've figured it out (see what I did there?). I usually set the limit tighter than a $5 window, but if you'd be comfortable paying $80 that's fine. I'd generally be fine paying market price (that's what I do with index funds), but some of the algorithmic trading going on these days can make ETFs do some crazy stuff for short periods of time. I'd hate to catch a spike (when buying) or a flash crash (when selling), so I set limit orders just in case something strange happens to the market when I happen to be trading. It might not be necessary, but it makes me feel better and only takes a second.

This. When buying ETFs I'll usually put in a limit order a few cents above the current market price just to make sure there's no unlikely spike that pushes the price way higher than I was expecting.