Always use limit orders for purchasing or selling your shares. This is a simple rule that every DIY investor should use. NEVER use a market order. It’s a simple rule of thumb and one that can save you some money. Jim Cramer is a big proponent of that rule as well.
Why Use Limit Orders?
High frequency trading makes use of machine and we have seen some crashes in the past. If you use market orders, you can be at risk.
Another reason is that most discount brokers show a delayed quote unless you qualify for real-time quotes. I do not even qualify for real-time quotes and I have a decent amount invested. Due to the delayed quote, your market order might not be anywhere near the price quoted.
What Limit Price Do You Choose?
Now that we agree on using limit orders, what price do you choose? If I am happy with the market price, I simply pick that limit. It’s possible that price movements have sent the stock up for a purchase or down. You can wait or adjust your price if you really want to sell.
I personally never really use prices far from the market price as when I am ready to buy, the current price is usually satisfactory for initiating or adding to my position.
Readers: Do you use market orders?
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