So I've been wanting to clarify the use of limit/market orders. I know it's better to have a limit order in which let's say there is a key support/resistance level and you let the market come to you instead of taking whatever the market gives you. However over the course of trading these past few months...for example I see that the market is trying to make a bottom at a certain level, and thus I make buy limit instead of market orders. Then that certain stock continues to climb as I keep bidding buy limit orders before the ask instead of cover @ market. Is it better to just buy @ market here? When are you supposed to use market/limit orders?? Also in futures trading, if you make a market order, there is sometimes a huge lag in which it creates a huge tick difference from when you entered. But sometimes the market moves too fast on a breakout and it's better to do a market order instead of limit order. Any input would be appreciated.
My personal preference is to NEVER use market orders. I'd rather enter a limit order through the offer or bid. You never know when there will be exchange system problems and liquidity will disappear.
Most times, the difference between a market and limit order is all about slippage. If you're making a large play relative to an issue with a small float, a limit order is perhaps warranted. Otherwise... "getting the directional trade right" is much more important than whether the price is filled at one tic or another. (Anecdote... years ago, I missed a $600K profitable trade by $.10 in the big SP contract... a market order would have gotten me filled, of course... but my limit order missed by $.10. After the price moved away, I called the broker and inquired whether or not my bid got filled. They said "no". "Penny wise and pound foolish", was I.)
If there is enough liquidity. Indeed fills are more important than slippage. 1 missed trade can cost you more than the slippage of 100 trades.
Yeah I feel like with futures every tick is important, but if you try to never buy at market, the limit order sometimes won't get filled and the market runs away when you had the foresight and trade. But then again I've also heard its better to be disciplined and let the market come to you. I guess the answer is when market is trading in a small range with low volatility, you can do limit orders or as Scat said small float with large plays. However you shouldn't penny pinch too much and care about a small tick, when the trade is more important when you see an opportunity? Also I was reading somewhere on ET that people who watch the DOM/market depth, sometimes can't see the big players because they buy/sell at market.
Good to remember the old saying... "measure with a micrometer, mark with a paint brush, cut with an axe".
Why do they buy/sell at market you think? Much depends of the way you trade. If you have S/R levels you can put limit orders. But if you only trade once the market moves in the direction you want, you have to take market orders because (if you are right) prices will only get worse to enter.
I trade mostly large cap stocks. While I use typically use limit orders to enter, market orders are fine as long as their is good liquidity. If I am working on a mid-cap stock, I am much more careful about using market orders. For futures, I never had an issue with eminis, and slippage was only a tick. When in doubt,use a limit order unless you have to get out fast.
I'm so obsessed with slippage, that "limit" orders are a must. Right up to March of this year, when my 2 year profit run came to an abrupt end, I was trading using "absolute" instead of "percentage" and was giving away so much slippage. Got to keep in control with "limit". Cheers!
Limit Order or Market Order Po-tay-to or Po-tah-to Six of one or Half dozen of the other At the end of the day there is no difference. But I prefer market orders since getting the order filled is more important to me than trying to save a few pennies with a Limit Order that might not get filled.