Wise Stock Trades

By: Thomas Morva
Submitted: 2007-01-17 16:16:37
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When you place a market order, you are essentially telling a broker to buy or sell a stock at the current market price. A market order is the way your broker normally places an order unless you give him or her different instructions. The advantage of a market order is that you are almost always guaranteed that your order is executed as long as willing buyers and sellers are in the market place.

Generally speaking, buy orders are filled at the ask price and sell orders are filled at the bid price. If, however, you are working with a broker who has a smart order routing system, which looks for the best bid you sometimes can get a better price on the NASDAQ or AMEX exchanges. Whenever the order involves the NYSE, you need a good floor broker. In most brokerage houses, market orders are the cheapest to place with the lowest commission level.

If you want to avoid buying or selling stock at a price higher or lower than you intend, you must place a limit order instead of a market order. When placing a limit order, you specify the price at which you will buy or sell. You can place either a buy limit order or a sell limit order. Buy limit orders can be executed only when the price of the stock you are buying is at the limit price or lower. A sell limit order can be executed only when the selling price is at the limit price or higher. In other words, you set the parameters for the price that you will accept. You can’t do that with a market order. The risk you take when placing a limit order is that the order may never be filled. Most firms charge more for executing a limit order than they do for a market order. Be sure that you understand the fee and commission structures if you intend to use limit orders.

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