Skip to main content

Why I Always Use a Limit Order

person using smartphone and MacBook Pro

When buying stocks, there are two main type of orders: Market Orders and Limit Orders. Let's discuss what these are and which is best for most investors.

Market Orders

Market orders are the simplest kind. You're buying at whatever the current price is. You're agnostic to it and just want your stocks! Given the limited restrictions, these orders offer the greatest likelihood of fulfillment....but this comes at a cost.

Given the lack of limits, you could end up paying much more than expected. Markets are volatile, prices can sharply shoot up out of nowhere. Passively accepting the market price opens you up to the risk going into margin (negative balance), leading you to owe money and face interest charges.

Limit Orders

Limit orders, as the name implies, places a limit on the price you're willing to pay. Your order will only be filled if it's within your limits. This provides more certainty. Whichever way the markets moves, it's guaranteed that you won't pay more than your limit, allowing you to size your order appropriately.

Best of Both Worlds

A great way to combine the fillability of Market Orders with the assurance of Limit Orders is to do what is called a Marketable Limit Order. These are limit orders that are expected to be filled immediately due to how they are placed.

How to do a Marketable Limit Order:

When Buying - Set your limit price at 2 cents above the current ask price (the price sellers are asking for).

When Selling - Set your limit price at 2 cents below the current bid price (the price buyers are bidding with).

Because you are placing your order a bit above the asking price (or a bit lower the bid price when selling) you can expect your order to fill immediately as the few cents difference acts as a buffer for market movements. This is how I buy all my ETFs and it always leads to a speedy and safe order.


Popular posts from this blog

The Art of Giving Feedback

Constructive feedback is an awkward affair. You don't want hurt feelings, but recognize the importance of honesty. You've tried the classic "hoping things will get better on its own" and unfortunately it hasn't played out. When giving feedback, here are a few things that I try to keep it mind. Start with empathy. Step into their shoes and understand their story. If you don't know, ask. Be genuinely curious. Feedback is a dynamic affair. Shared communication with a shared goal towards progress. Take the emotion out of it. Focus on the situation, not the person. Focusing on the person adds unnecessary weight to an already emotionally-bloated event.  Be specific. Give clear examples. Vague feedback equals dismissed feedback.  Doing above won't de-awkward things fully, but it will dampen it and increase the chance of better outcomes. 

ELI5: The Stock Market

Today we get back to basics and answer some of the most common questions about the stock market.

Step One is Knowing

In school, we listen to our teachers. At home, our parents. Throughout our childhood, following instructions is praised and rewarded. When we're young, there's value in this. We don't understand how the world works quite yet, so guidance can be lifesaving.  The bias to just accept obviously has drawbacks. Insert old jumping off a bridge adage .  This conditioning is especially strong for kids from lower income households. Their parents are more likely in working class jobs involving strict order-taking. Parents of middle-class households tend to be knowledge workers where influence is essential.  Studies have shown kids from middle-income households are more willing to negotiable with their teachers. They learn from their parents that things are not set in stone. This leads to better grades and learning outcomes when compared to their lower income counterparts who don't negotiable.  In business, if we simply accept things as they are, we would never innovate. In work, w