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I have been burned with missed trades at E and Ameri.
Could you explain in more detail about "missed trades"? Do you mean that you inputtted a trade and it never went through via the website (got swallowed up in some black hole of cyberspace and was never executed)?
If that was what happened, how did Etrade and Ameritrade handle the problem?
This is something that would concern me far more than the market/limit trade question.
Stock has a Bid price and an Ask price. You can sell at the Bid and buy at the Ask. The Ask is always higher. This eliminates instant arbitrage opportunities. Market orders give a little bit more fudge room to market makers even though they're supposed to have trading priority.
I usually use limit orders but I have used market orders in certain circumstances. I would usually recommend limits but your mileage may vary. The exception is Stops -- these days I almost always use regular Stops instead of Stop Limits.
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Originally Posted by totallyfrazzled
Could you explain in more detail about "missed trades"? ...
missing a limit order that had plenty of time to clear before price ratcheted (Up or Down) or getting hosed on a market order that when you submitted (usually executing at a much higher price for a buy... lower for a sell). Which I didn't understand much until explained how your broker is possibly taking the other side of your trade and stands to gain more from that than the trivial commission rate.
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If that was what happened, how did Etrade and Ameritrade handle the problem?
They don't handle it... you just 'suck it up' (and after enough pain you leave their services.)
I do my 'time sensitive' trading through 'Think or Swim' accts. They are on the ball, tho I've not had a trading problem with scott
janb, thanks for your answer on that. But I still don't understand how the risk of inputting a market order online differs in any way from calling the same order in to my real-live-person Smith Barney rep. I had asked this in a post at the bottom of page 2, so you might have accidentally missed it. Could you take a look and give me some insight/answer to that as well? Many thanks!
I'm not sure I understand what you mean by "there is a trader on the other side"; if I'm doing this online, isn't it all done electronically? In other words if I enter a sell order for my 100 shares of SuperWidget at 9:31 a.m., doesn't that sale take place at sometime between 9:31 and 9:32? Why would it be any later than, say, a minute from when I hit that Submit button?
With SmithBarney, I would simply check something's price online, pick up the phone, call my broker, say "I want to sell 100 shares of SuperWidget", she would check it on her computer and say "It's currently at $32.1625", I say "fine", she hits a button, says "Okay, done", and in a couple of days I get a check for the proceeds and also a Trade Confirmation that shows I sold 100 SuperWidget at $32.1625 on that day and time. How is that any different from putting in my market order online? I just don't see it....
I don't deal in such large quantities that a different of even $1/share would be a make or break. In 20 years of investing I have never felt a need or reason to use a limit order. For what I'm doing it doesn't make sense. Especially since I am the classic buy-and-hold-longterm investor. Longterm meaning 5, 10, or 15 years.
First, what works for your particular trading strategy may not work for another. I am not a buy and hold investor. I am constantly evaluating my positions based on the current data. If the factors that led me to buy a particular stock are no longer applicable then it makes no sense to continue owning it. I feel sorry for the B&H guys who bought Ford or GM last year. Also, if $1 variance is no big deal then you must not be buying stock under $5 per share.
OK, the other side of the trade is the market makers or your broker. For instance, how do you know SuperWidget was really at $32.1625? But anyway, for small orders of a stock with decent volume a market order is just fine. But what you should do is watch the quotes sometime and watch the Bid and Ask price, and the Lot size. The market makers are only offering to buy/sell a certain number of shares at a specified price, what lies at the next level is unknown to you. If your order is greater in size than the available lots, you are essentially handing over a blank check. Again, on active stocks with decent volume that's not a problem but market makers do play games with the Bid and Ask. Maybe the market maker offers 500 shares for $32 and it sells immediately, so they offer 500 more for $32.25 and it sells immediately, so they fish for a fool and offer 500 more for $34. Your market order is a mindless robot saying I'll take it regardless of price.
Also, if $1 variance is no big deal then you must not be buying stock under $5 per share.
DiverTodd, once again thanks so much for your very thorough response! Your assumption about the costs of the stocks I own is correct; I took a quick look at my portfolio and the lowest price I have ever paid for any stock (other than the one I'll mention below) was back in 1996 when I bought a few hundred shares of Canadian National Railway at $9.238. Back in the good old days of early June 2008, the stock was trading at $48 and change; even now it's at $35 so it's still a matter of a relatively slight difference in capital gains whenever I do decide to sell it.
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OK, the other side of the trade is the market makers or your broker. For instance, how do you know SuperWidget was really at $32.1625?
What I would normally do is phone my SB person while sitting at my computer refreshing the realtime quote at a site such as Yahoo, so that when she gave me the price I would compare it to what I'm seeing at that moment online. I've never had the two numbers vary enough to make any difference to my decision to buy or sell. And again, never talking huge numbers of shares either; I see the smallest amount of shares of any one stock I own is 53 (a spinoff) and the largest is 1741 (a result of past splits and dividend reinvestments since the late 1990s). Most of them fall somewhere between 200 and 500 shares of any given company (all large caps).
The only time I've bought a stock at less than $5 share was when I picked up 1500 shares of Hydrogenics when it was selling for about 50 cents a share in April of this year. This was strictly a flyer with some unexpected "mad money", speculating that in 15 years or so hydrogen fuel cells will become a major alternative-energy player. If that doesn't turn out to be true, or if the company goes belly-up, I'll be able to use the loss or writeoff against some other longterm capital gain. I don't even look at Hydrogenics' price nowadays because (a) it's as lousy as everything else and (b) the industry hasn't nearly got to where I hope it will be in, say, 2025. We need more states like The Governator's to push the demand along...
I see in the screenshots on the Online Broker Review site that they all clearly display the current Bid and Ask prices, so I'd be essentially doing the same thing online as I have been doing with my broker (probably a smidgen faster, not enough to make any real difference). So for a sale, whatever the Bid price is shown when I click the confirm button would be what I would get; which is fine in my circumstances.
So for a sale, whatever the Bid price is shown when I click the confirm button would be what I would get; which is fine in my circumstances.
No, not necessarily. Disregarding the fact that the price can change between the time you click the button and the trade actually executes, the bid price is only valid for the lot size. If you are selling more shares than the lot size you don't know what price the other shares will execute at. A typical online trade for 1000 shares will often consist of several separate transactions at different prices, unless you check the All Or None box.
As I said, on major stocks with decent volume it's not going to be a problem. I'm not telling you how to trade. It may never be a factor in your style of trading, just something to keep in mind. It mainly comes into play with those "mad money" speculative stocks.
As for the $1 variance, of course it's no big deal on a stock that turns out to be a 4 bagger in less than 10 years, but for a $5 stock that gains 20% over that time, the $1 represents the entire gains.
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We need more states like The Governator's to push the demand along...
