Market vs limit order

[keret]

Hello and thanks in advance;

I am not ready for level 2 and I have a quick question. I need to execute trades very early in the morning (as the best time to trade is the 1st hour - we all know that...) I find myself struggling to chase a stock that is moving too fast and me having to go through 3 screens before the order is submitted.


I wonder if market orders (placed before the opening) would give me any advantage.
Alternatively, if the answers is no; then what's the best way to execute a limit order in a timely manner?

Thanks/regards

[Fredledingue]

If a stock open significantly higher in the morning, there is little chance your order be filled at a lower price.

Everything depends on how much you want to pay for the stock.
Personaly I always use limit order because I'v been burnt too often on market order.
Last time I lost $2 or 3.5% per share purchasing MS.

But i do set limit order at prices higher than market when I realy want to buy.

If you think that a stock is going to rocket up in the first hour, it's IMO a very good reason to set a limit order and not risking big on an uncontrolable market order.
Say, if you think the stock will move from 40 to 50 in the first hour, set a limit at $45, then if you are lucky, sell at $49 for a quick intraday profit.
If your order is not filled, you lose nothing because you will buy the same stock at $45 two or three days later...
But don't set a market order because you may buy it at $55, the highest for the day and the 6 next months.

Market orders are very dangerous.

[keret]

Valid points. I'll stick to limit order. Is there any way to find out (pre-market maybe?) if a stock will open higher in the morning?

If so what tool do you use?

[Airelon]

Fred won't steer ya wrong, and I have to echo many of his statements.

Market orders do have a purpose. But they should be realized for what they are, and you should understand that going in - a Market Order is designed to let the 'market' dictate what price you receive.

In other words, you're going to get screwed.

This is how I usually explain the difference. Let's say you're haggling in a market / bizarre for a price on a piece of fruit. You want it for less money, the owner of the stall, obviously wants to sell it to you for more - right? We can all picture that in our minds. So what happens? You haggle. Back and forth. That's what the financial exchanges are all about. Haggling over price.

In a Market Order, you're in effect telling the owner of the stall - "Within the prices that we've already discussed, you set the price for me"

He's obviously going to dictate the highest price he can get away with.

The same is true with a Market order.

Whatever the bid-ask spread is, you're going to get the worst side of that spread with a market order. But, you will be filled. That's the advantage. You can use a market order if the bid-ask spread is very 'tight'. You won't be screwed as badly - and you will be filled.

The advantage of a Limit Order, is obviously that you get to absolutely dictate the price that you will be filled with. The disadvantage? Is that there is no guarantee that the exchange will fill the order. The market may not deem your price to be reasonable in the spread, and there will be no takers.

So it's a matter of 1) How tight is the bid-ask spread? 2) How badly do you want in a particular order 3) How much do you mind the market screwing you over on price?

[proson]

Originally Posted by Airelon

Fred won't steer ya wrong, and I have to echo many of his statements.

Market orders do have a purpose. But they should be realized for what they are, and you should understand that going in - a Market Order is designed to let the 'market' dictate what price you receive.

In other words, you're going to get screwed.

This is how I usually explain the difference. Let's say you're haggling in a market / bizarre for a price on a piece of fruit. You want it for less money, the owner of the stall, obviously wants to sell it to you for more - right? We can all picture that in our minds. So what happens? You haggle. Back and forth. That's what the financial exchanges are all about. Haggling over price.

In a Market Order, you're in effect telling the owner of the stall - "Within the prices that we've already discussed, you set the price for me"

He's obviously going to dictate the highest price he can get away with.

The same is true with a Market order.

Whatever the bid-ask spread is, you're going to get the worst side of that spread with a market order. But, you will be filled. That's the advantage. You can use a market order if the bid-ask spread is very 'tight'. You won't be screwed as badly - and you will be filled.

The advantage of a Limit Order, is obviously that you get to absolutely dictate the price that you will be filled with. The disadvantage? Is that there is no guarantee that the exchange will fill the order. The market may not deem your price to be reasonable in the spread, and there will be no takers.

So it's a matter of 1) How tight is the bid-ask spread? 2) How badly do you want in a particular order 3) How much do you mind the market screwing you over on price?

Great info Airelon. I myself always use limit order when buying stocks since I have a bit of control of the stock price. If the price raises (drops) sharply in a short period of time, I don't think it is a great investment anyway. What do you think?

[Airelon]

As you said, you will find a ton of reasons for going with one type of order, rather than the other. As you gain time, experience and skill with different exchanges and investment vehicles, it becomes easier and easier to decide which one to use. As you said, I prefer a Limit order due to the advantages. But I've also been known to use a market order when a) I really want filled, and b) the bid-ask spread is extremely tight and has been thus all day.

[keret]

Thanks guys!

I understand your point...

Is there a website where I can check the amount of orders that have been accumulated before the opening? To get an idea of what direction the stock may go?

Thanks/regards