# Buying shares - Market Price or Limit Price?



## jargey3000 (Jan 25, 2011)

When placing orders, what are the pros & cons of opting for "Market" or "Limit" price.?
In what situations does it make sense to choose one over the other?
Do the "Bid" & "Ask" prices (and lot size) have a bearing?


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## Numbersman61 (Jan 26, 2015)

jargey3000 said:


> When placing orders, what are the pros & cons of opting for "Market" or "Limit" price.?
> In what situations does it make sense to choose one over the other?
> Do the "Bid" & "Ask" prices (and lot size) have a bearing?


I always use limit orders. Many times there can be a big sread between bid and ask, especially at the start of trading day.


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## jargey3000 (Jan 25, 2011)

and in general , do your limit price orders usually go thru?


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## AltaRed (Jun 8, 2009)

jargey3000 said:


> and in general , do your limit price orders usually go thru?


If you price them at Ask, yes...to the extent there is enough offered at the Ask price to fill your order. If you only get a partial fill, then revise the price of the remaining part of your order to the next Ask....if you want your order completely filled.

As Numbers said, avoid start and end of the trading day unless you put in stink bids to see if they are filled (stink bid being well below market).


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## Numbersman61 (Jan 26, 2015)

jargey3000 said:


> and in general , do your limit price orders usually go thru?


In most cases, my orders are filled but when I'm ready to do a trade, I carefully watch the market and may have to change the price depending on the market. I wait for the point when the spread is small; if the spread is wide, my order will likely be at mid point.


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## Rusty O'Toole (Feb 1, 2012)

Use a market order and you will automatically get a bad fill. Use a limit order and you will get your price or not get filled at all. I always use limit orders but there are disadvantages to each.


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## Hippie (Mar 2, 2016)

I use either. For buying and selling. Depends on the circumstance.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> If you price them at Ask, yes...to the extent there is enough offered at the Ask price to fill your order.



not really. AltaRed i remember going over this with you a while ago. Only sheeple would pay to the ask, or sell to the bid, during prime time in the middle of the day.

nearly always, there are more participants than appear in the sizing of the B/As. There are dark rooms full of such lurkers. Skilled traders know how to read the market depth. They can guesstimate whether there are unseen buyers & sellers who are ready to be coaxed out & at what price they can be coaxed.


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## humble_pie (Jun 7, 2009)

here's a simple rule for calculating a limit price:

take the mid-point in the B/A spread & add 10% if you're the buyer. You can adjust upwards slightly if you're hell-bent on getting the stock. On the other hand, if you're seeing large numbers of offers appear & disappear intermittently in the sizing, trim back a bit. Because there's a whale close to shore & he's trying to sell.

subtract 10% of the spread if you're the seller & offer at that price. Again, look out for whales.
.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> not really. AltaRed i remember going over this with you a while ago. Only sheeple would pay to the ask, or sell to the bid, during prime time in the middle of the day.
> 
> nearly always, there are more participants than appear in the sizing of the B/As. There are dark rooms full of such lurkers. Skilled traders know how to read the market depth. They can guesstimate whether there are unseen buyers & sellers who are ready to be coaxed out & at what price they can be coaxed.


I am aware that there are more particiapants than show up on the Level 2 Bid/Ask. But I've never had the experience you suggest. I've always had a fill at Ask if indeed I wanted the fill right away and to be done with it. 

OTOH, more often, I will take more time to 'play' the Bid/Ask on a trading day and put in a limit that is about halfway between Bid and Ask. In those scenarios, I sometimes see the Ask go up as a result. Games of course. If it does that, I then lower my Bid as a countermeasure to a penny above the then highest Bid on Level 2 and leave it there. It usually plays out in 2-4 hours, and often within an hour before trading close.


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## hboy43 (May 10, 2009)

Limit order provides certainty of price, market provides certainty of quantity (more or less, there might be none on offer). Practically speaking, buying highly liquid stocks and having an average hold time of over a half decade, the last 5 cents does not matter here, so I usually run with a market order.


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## humble_pie (Jun 7, 2009)

i do 200-300 trades a year, nearly all option trades, so a dime does make a difference.

some option trades are in thin markets. Here it's possible to watch the same party testing the water day after day, if he has an unusual number of lots or contracts. Now he's offering his 122 contracts, now he's gone. But two hours later the number of offers suddenly jumps by 122 contracts, at a new higher or lower price. So, he's back ...


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## Just a Guy (Mar 27, 2012)

I've always put in market limits. The volume of a small investor is usually pretty insignificant from a market point of view. I usually place my bids on the low side, but not unreasonable and usually have them filled. If I bid to low, I don't get the shares, if I don't I get them at the price I wanted.

As someone who doesn't like to overpay, I'm perfectly happy with the arrangement. There is no trade, for me, that I'll ever want at any price,


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## OnlyMyOpinion (Sep 1, 2013)

This is my approach & experience re/ shares being bought to hold (i.e. put in a limit order at the ask):



AltaRed said:


> If you price them at Ask, yes...to the extent there is enough offered at the Ask price to fill your order. If you only get a partial fill, then revise the price of the remaining part of your order to the next Ask....if you want your order completely filled...


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## humble_pie (Jun 7, 2009)

OnlyMyOpinion said:


> This is my approach & experience re/ shares being bought to hold (i.e. put in a limit order at the ask):



but it's so fun figuring out the true value price! which - for moderately or thinly traded stocks - is never the bid nor the ask, but rather is somewhere in between.

as Just a guy says, if one is bidding one sets a lowish price but a price that is still reasonable. IE one concedes a price increment to the counterparty.

exceptions are highly liquid markets where the B/As are only a penny to a few pennies apart. These are not worth bothering with. It's the big spreads that need to be worked up or down into more favourable prices.


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## lonewolf (Jun 12, 2012)

If using cycles I use market orders. Market is to be bought or sold @ a precise time so why use price when timing base on time?

If using price will still often use a market order will put in order on as soon as possible if a market touches a precise price target. Use to use market if touch order do not seam to be able to use them any more. If away from market not being able to put on a trade will put on limit order @ or near price target.


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## Just a Guy (Mar 27, 2012)

Prices rarely always go up, up, up. They fluxuate all over the place, going up and down all the time, even when the general trend is up, up, up. So why pay retail? Many day traders work on very thin margins, big companies go in and out of stocks automatically, putting in a low bid and having something called patients usually pays off. If you know the stock, and are willing to wait more than 30 seconds to own it, you put in a reasonable bid and wait. It may take a day or two sometimes, but the benefits can be significant. 

I usually put my limit bid in early in the day...I find certain time periods prices tend to be higher than others, for example first thing of the day is heavily traded, lots of excitement...middle of the day tends to slow down...end of the day is open to market manipulation (for example some company putting in a really wild bid/ask to make the stock look like its tanking/running away...this happens a lot with thinly traded stocks). 

Set your price and walk away for the day. If you get it great, if not reassess the next day and repeat. Watching the market is like playing the slot machines...lots of movement and excitement, which can leave your pockets empty. To be successful, I find its better to keep the emotions out of your decisions, so the best way to do that is avoid the distractions and excitement.

Ironically, it's the same strategy I use in real estate, not sure which investment strategy influenced the other, but I know it works. I know the price that will make me money and am willing to wait for it. You can't make money at any price, at least not reliably.


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## jargey3000 (Jan 25, 2011)

Just a Guy said:


> Watching the market is like playing the slot machines...lots of movement and excitement, which can leave your pockets empty. To be successful, I find its better to keep the emotions out of your decisions, so the best way to do that is avoid the distractions and excitement.


I gotta keep remembering & reminding myself of this!


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## humble_pie (Jun 7, 2009)

wondering why anyone would follow trading advice from parties who frequently claim that they make less than 10 trades per year, though.

parties making 10 trades a year can easily pay to the ask or sell to the bid. The dimes or dollars they will forfeit in 10 trades per annum will amount to zip in their lives. Such parties should pay or sell at the maximum/minimum of the price spread simply in order to get their rare trading event over & done with.

it's the more frequent traders who can benefit from learning to calculate the theoretical value at which a stock or option with a yawning B/A spread will actually trade in the public market.


.


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## AltaRed (Jun 8, 2009)

Because we know how to do it from over a period of 20-30 years of DIY investing. 

While you are right that it means absolutely nothing for people like hboy43 and I to pay market (Ask) doesn't mean that we don't: a) like to play the game with the few trades we do make, or b) pass on our experiences to others. It doesn't make our opinions any less useful.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> Because we know how to do it from over a period of 20-30 years of DIY investing.
> 
> While you are right that it means absolutely nothing for people like hboy43 and I to pay market (Ask) doesn't mean that we don't: a) like to play the game with the few trades we do make, or b) pass on our experiences to others. It doesn't make our opinions any less useful.



but you're not playing the game .each:

on the contrary, you & others are explicitly advising people to ignore all the techniques of proper trading & instead meekly pay to the offer or else sheepishly sell to the bid.

(also what is 20 to 30 years @ 10 trades per year?) (maximum 300 trades over a lifetime, is what that amounts to)

(me i'm not even an active trader) (active trader = 150 trades per quarter) (i just putter along doing 200-300 trades per year) (a slow cookie)

(there's a well-known gourmet food movement out there called "slow foods") (now comes a brand-new epicure movement called "slow trading")


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## 1980z28 (Mar 4, 2010)

I have been making trades for a long time using market if I am buying a bank or utility,all my trades are from 3500 to 100k plus,I will also make a number of limit trades(lots)I can buy and sell a couple time a day,My trading cost per year maybe in the 3000.00 mark,recently I have gone to dividend paying stocks only,getting ready for retirement,,so as I have done you learn as you go,I only hold stocks at this time,,,,good luck


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## humble_pie (Jun 7, 2009)

1980z28 said:


> I have been making trades for a long time using market ... I can buy and sell a couple time a day,My trading cost per year maybe in the 3000.00 mark



1980 i cannot imagine why someone like you would ever do a market order. You must be 300-400 trades a year?

wouldn't it be a good idea to stop building that root cellar & jump on trading technique instead.

someone like you could master technical trading modalities in a twink. The root cellar can wait until fall harvest time.


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## lonewolf (Jun 12, 2012)

Long out of the money put options the market has fallen hard making the price of the put options explode in price.

Your black & white parameters tell you to sell the puts now. You screw around with trying to use limit orders as the market bottoms an hour latter your order has not been filled as you chase the strong rally trying to get filled with limit order mean well your profits have been cut in half. 

You realize your method worked but you failed to follow it screwing around with limit orders.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> but you're not playing the game .each:
> 
> on the contrary, you & others are explicitly advising people to ignore all the techniques of proper trading & instead meekly pay to the offer or else sheepishly sell to the bid.


Nothing wrong with paying Ask or selling to Bid with a limit order if one believes that is a fair price to pay. With the exception of wide spread, low volume stocks, the Bid/Ask spread is typically only pennies. I just scanned my list of about 30 stocks, and the typical Bid/Ask as I write this is mosly 1-2 cents, with a few outliers at 10 cents... on stocks in the $15-$100 range.

Now with prefs that have low volume, Bid/Ask spreads are significant and one can get hosed if not placing limit orders appropriately. i will make about 6 trades on them this year for tax loss selling and to position my fixed resets for 2020 and beyond. That is a lot more challenging trying to move 2000-3000 shares when daily trading volume may only range from 0 to 5000 shares. In these cases, my limit orders may be outstanding for quite some time. A 30 cent spread on a $14 pref is more significant.... just like it is when buying, for example, a short term bond ETF like XSB. 10-20 cents matters.


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## hboy43 (May 10, 2009)

humble_pie said:


> but you're not playing the game .each:
> 
> (also what is 20 to 30 years @ 10 trades per year?) (maximum 300 trades over a lifetime, is what that amounts to))


Last 2 years I have in about 3 dozen transactions, an outrageous level of activity for me. Have I moved into "trader" status with that level of activity?

Things are currently working well though. Those 3 dozen recent transactions have been highly accreditive.

So the lesson from me is, most of the time do close to nothing, chip in your monthly savings, and when something REALLY obvious happens like the recent materials (esp oil) rout, or 2008/2009, get your hands dirty! Of course, most people run away scared. There is only so much I can do.

hboy43


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## humble_pie (Jun 7, 2009)

lonewolf said:


> Long out of the money put options the market has fallen hard making the price of the put options explode in price. Your black & white parameters tell you to sell the puts. You screw around with trying to use limit orders as the market bottoms an hour latter your order has not been filled as you chase the strong rally trying to get filled with limit order mean well your profits have been cut in half. You realize your method worked but you failed to follow it screwing around with limit orders.



wolf if your long-term put option is now DITM - as i recall it was a LEAPs SPY - the bid is, as you say, most likely going to be significantly below intrinsic value.

this is generally true for many DITM options either at expiration or immediately prior to a dividend X date in the underlying.

what to do? IIRC you are long this option, so short the underlying first, then exercise the option to cover the short. You will receive full value. Best of luck.


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## 1980z28 (Mar 4, 2010)

humble_pie said:


> 1980 i cannot imagine why someone like you would ever do a market order. You must be 300-400 trades a year?
> 
> wouldn't it be a good idea to stop building that root cellar & jump on trading technique instead.
> 
> someone like you could master technical trading modalities in a twink. The root cellar can wait until fall harvest time.



Retirement is near,have put all into dividends,have one more house to sell soon should get 400k,funny thing I have spent most of my life collecting money,to date I have enough to out live me,,,I think that I may have enough cash to build a second cellar,,,you will have to visit


All my liq is starting to move,holding a lot
Sold all my FM,done well


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## humble_pie (Jun 7, 2009)

AltaRed said:


> Nothing wrong with paying Ask or selling to Bid with a limit order if one believes that is a fair price to pay.


B/As are never fair. A counterparty or a market maker is always going to make money. The game is to discover the compromise price.




> With the exception of wide spread, low volume stocks, the Bid/Ask spread is typically only pennies. I just scanned my list of about 30 stocks, and the typical Bid/Ask as I write this is mosly 1-2 cents, with a few outliers at 10 cents... on stocks in the $15-$100 range


sorry, have to totally disagree. Someone like yourself is likely to hold popular & highly liquid stocks, ETFs. As i've mentioned, these have very tight spreads, there's nothing to trade. Pay the price. Yawn.

meanwhile there are literally hundreds & hundreds of thousands of stocks & options with less liquid markets. These trade with gigantic yawning abyss spreads in the B/As. Parties venturing into these chasms can benefit from learning to trade smart imho.




> Now with prefs that have low volume, Bid/Ask spreads are significant and one can get hosed if not placing limit orders appropriately. i will make about 6 trades on them this year


these are some of the institution-dominated illiquid markets i'm talking about. This is where it pays to know how to coax a counterparty. Or not, as the case may be.

however, i don't believe that 6 trades of this type per annum bestow sufficient expertise upon a practitioner that he should attempt to constrain others from learning proper trading techniques.




> That is a lot more challenging trying to move 2000-3000 shares when daily trading volume may only range from 0 to 5000 shares.


in reality, it's not challenging. It's what some of us do every day for a living.

altaRed, if you are feeling somewhat picked-upon, i am sorry about that, but it is because you have been posting disrespectful remarks against frequent traders for a very long time now.

.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> altaRed, if you are feeling somewhat picked-upon, i am sorry about that, but it is because you have been posting disrespectful remarks against frequent traders for a very long time now.


No, I don't feel picked on. I do have strong views about being an investor rather than a trader...so to the extent the traders flex their muscles here, so will I. I am in the Buffett, Bogle, Bernstein camp and studies show most investors cannot outperform CCP portfolios. There is too much marketing hype from discount brokerages on frequent trading....so I make it my mission to be sure other views are heard. That's been my mantra since I joined financial forums in the late '90s.


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## OnlyMyOpinion (Sep 1, 2013)

AltaRed said:


> ... I do have strong views about being an investor rather than a trader...


You mean you let your money work for you rather than working for your money? (not to pick on Humble et al)


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## james4beach (Nov 15, 2012)

AltaRed said:


> No, I don't feel picked on. I do have strong views about being an investor rather than a trader...so to the extent the traders flex their muscles here, so will I. I am in the Buffett, Bogle, Bernstein camp and studies show most investors cannot outperform CCP portfolios. There is too much marketing hype from discount brokerages on frequent trading....so I make it my mission to be sure other views are heard. That's been my mantra since I joined financial forums in the late '90s.


And thanks for that 

Yes of course the discount brokerages all want to push the notion that "you can trade your way to riches"... and everyone wants to believe that it's simple. What's with these promotions of theirs? 150 trades/quarter, are you insane? Good luck with that...

A few years ago I crunched some long-term data and plotted my net profits vs number of trades. To my horror, I saw that the more I traded, the less I made. (Interactive Brokers in particular makes it too easy to trade... at such low fees right?) It turned out that my best strategy was to do minimal trading: a few good positions that I manage over time.

These days I will go months without a single trade and most of them are about position management or implementing long term strategies. It's working out much better!


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## humble_pie (Jun 7, 2009)

AltaRed said:


> I do have strong views about being an investor rather than a trader...so to the extent the traders flex their muscles here, so will I. I am in the Buffett, Bogle, Bernstein camp and studies show most investors cannot outperform CCP portfolios.



what does couch potato have to do with the placing of market or limit orders to buy securities, which is the topic of this thread though.

ETFs have to be bought & sold as well as stocks. The B/A spreads in some exotic ETFs & their options are far bigger than many stocks.


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## humble_pie (Jun 7, 2009)

james4beach said:


> A few years ago I crunched some long-term data and plotted my net profits vs number of trades. To my horror, I saw that the more I traded, the less I made ... It turned out that my best strategy was to do minimal trading: a few good positions that I manage over time.



the above anecdote is only telling me that your investing know-how has improved over the years, félicitations.

imho the above has little to do with frequent vs infrequent trading 


.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> what does couch potato have to do with the placing of market or limit orders to buy securities, which is the topic of this thread though.


Nothing. My response was to your comment about me harping on frequent traders. I concede a better response would have been to simply say 'buy and hold' which is what CCP types do by design.


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## humble_pie (Jun 7, 2009)

^^


oh but i do buy & hold. Quite possibly more than you do. My longest held shares are the 3 BMOs my godmother gave me when i was christened. I've held them all my life.

but for sheer longevity of holding. i still have some of the great-grandfather's BMO & royal bank shares. He bought them nearly 100 years ago.

curious to know if you happen to hold anything quite as long-term-buy-&-hold as the above?

in addition, i started selling options on the positions as soon as i learned how. Working summers age 19 & 20 on a remote cousin's farm in france. Their banker taught me. Farmers have insured crops & vines for centuries & their bankers have sold & resold the harvests as commodities. Options were a natural branching out.

i still have the original shares plus others i've added. I've never stopped selling the options.


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## james4beach (Nov 15, 2012)

humble_pie said:


> the above anecdote is only telling me that your investing know-how has improved over the years, félicitations.
> 
> imho the above has little to do with frequent vs infrequent trading


Thanks! So... perhaps I came to the wrong conclusion? Hmm. My available free time has also become more limited, so I really have no choice other than minimal trading.


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## AltaRed (Jun 8, 2009)

I never once suggested that you were not 'buy and hold' ao I am not sure what your point is. Nuff said to avoid futher derailment of this thread.


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