When buying or selling stock you have the choice between using a market order or a limit order. Market orders are often easier to use and execute quicker than a limit order. Once you have been investing for a while and have a good understanding of the stock market and orders, using limit orders can provide a better price. When starting to invest we suggest using a market order if the following 3 criteria are met.

1) The average daily volume (the number of shares traded per day) is over 100,000. This is still a low number and a higher number might be better to use as a gauge. You can check the daily volume here.
2) The Bid and Ask prices are fairly close (also known as the spread). Within 0.40% of the stock price is usually a good measurement.
3) You are not buying a Large amount of shares. 1000 shares or less is usually OK.

If these three criteria are met then a market order is easy and works best. A market order means the order immediately executes at the best price available to meet your order amount. With a limit order you specify a price and someone else has to agree to that price. This can take longer depending on the volume of trading and the distance your price is from the opposite bid or ask. Once you have been investing for a while limit orders are often be a better choice. You can usually get a better price with a limit order allowing a slightly better profit.

Tags:   Buying Stock   Learn How to Invest   Limit Order Definition   Market Order Definition  

Posted on April 1, 2007 3:38 PM | Digg | del.icio.us