MOLLY AND THE LIMIT ORDER

Let me take a moment and explain the difference between a limit order and a market order. I will give you the punch line first. If you are new to trading you should avoid market orders, especially in a fast moving market. And even more so, if you need to watch every penny. There are times for market orders, but very few.

A market order tells your broker or online service to go buy a stock or option no matter the current price. You will get the "next best fill."

A limit order is just what it says. You limit the price. You place your order for the stock or option at a set price, to buy or sell. If the security does not hit that price, you will not get filled.

Your broker has a fiduciary responsibility, and his computer will act this way, to get you the best possible price, even if it is a little different than your limit price, but it always has to be different in your favor. Say you're trying to buy a stock for $6.60. It's currently at $7. It would take a 40 cent down draft to get hit. Now, in a fast moving market, it moves quickly to $6.40. If you did not get filled at $6.50 which is normally the case, as computers are so fast today, you will get filled at $6.40---the next best fill. It is assumed that if you want the stock at $6.60, you'll love it at $6.40. If you had in a market order, you probably would have gotten filled at around $7. If the stock is moving slow it probably doesn't matter the type of order. You can watch and jump in at a price you like.

This is the same with buying options and/or selling options, as in covered call writing. I was writing to one student and she chased an option with limit orders. The Dow was moving fast and she wanted the $114 calls, she tried to get them at $1.30, it moved. Then she tried to get them at $1.50, and it moved through that price and she missed it again. She really wanted them. There is the exception to the above rule. If you really, really want them, change it to a market order. Make sure you're on the same page as your broker. "Get them!!!" Means a market order. You don't care if you pay $1.30 or $1.50---you just want them. Why? In that fast moving period, the option went up $1.00 or so, and she could have gotten out already with near a double.

Oh well, live and learn. There will be more trades tomorrow. Hang in there Molly. We all love you.
Wade