Friday, January 13, 2012

Limit, Market and GTC orders


Common knowledge when placing an order to buy stock.  Always use a limit order.  A limit order instructs your online brokerage or broker to buy a certain number of shares at a specific price.  This gives the buyer the power to decide what price they are willing to pay for the stock that they are trying to purchase.

If you place a market order with your broker bad things can happen.  You could end up paying much more for a stock then you planned to because during the time of placing the market order and the time that the order is filled there is a possibility that the stock could get much more expensive.  Your broker will take a market order and just fill it at the most convenient price available there is no reason for your broker to hunt for a better price if you place a market order.  They will get their commission for the transaction no matter what price it gets filled at.

You can also place GTC orders with your broker, (Good Til Canceled).  These orders will remain open until they are filled at least for a long predetermined amount of time, sometimes for 30 days etc.  Be careful when using these types of orders because market circumstances can change on a day to day basis and you want to make sure you don't forget about at GTC limit order you placed 20 days ago that fills once you find out the whole market has crashed.

When you open an online brokerage account or open an account with a broker make sure that they do not charge fees for any of these types of orders.  There are plenty of online brokers who don't charge their clients to make limit or GTC orders.

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