Market Orders Vs. Limit Orders

Tim Sykes has a good article at TradingMarkets on the advantages of limit orders over market orders. I always enjoy hearing what Tim has to say because his approach to investing is almost the polar opposite of mine. Plus, any article that says, “90% of traders are known losers,” has got to win a place in your heart. (BTW, how many are unknown losers?)
Tim is a frenetic trader whereas I change one-quarter of my Buy List just once a year. There’s no one right way to invest—it often comes down to personality and temperament. Tim says that he hasn’t once used a market order; I can’t remember the last time I didn’t.
Tim’s point is that so much of strategy comes down to simple execution:

By using limit orders, I ensure a satisfactory execution. And, if none or only some of my order executes – as often times stocks run too hard and too fast, blowing past my limit price – then it’s probably for the best because experience has taught me not to chase stocks. Obviously buying to cover into a short squeeze is an altogether different animal – on those you need to get out as soon as possible – so I just place my limit far above the current price, still cautious not to wildly overpay or open myself up to getting taken advantage of by many of Wall Street’s nefarious players.

That’s an interesting angle because one of the frustrations I’ve found in limit orders is only getting partially filled. That would drive me nuts because I felt half dressed. With stop-losses, I found myself canceling far more than any there were ever triggered.
Tim concludes:

So, demand more from yourself whenever you place a trade. Be disciplined, be cautious, and be wary. Thinking this way will surely cost you a few missed opportunities, but the money saved over time from minimizing poor executions and emotionally charged trades will make it well worth your while.

Posted by on June 11th, 2008 at 11:29 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.