Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 150

have no control over the execution price. Since market orders usually cannot be canceled (by the time you get around canceling the order, the order has been executed), you are at the mercy of the market. Placing a market order for low volume or volatile stocks could have surprising consequences. So what is the investor to do? Place a limit order. That's my preferred way.

With limit orders you are in complete control. You specify the price per share to buy or sell a stock and your order will only be executed if that price is matched. Yes, you lose the immediacy of market order as market orders are always filled before limit orders, but in my opinion it's a fair trade-off to have firm pricing control. It's the difference between having a firm price versus taking the best offer. With a limit order, it is quite possible that the order may never get executed. This is especially true if your specified price is far from the going market price. If Ford is selling for $50 per share and you enter a bid of $40 per share, you would probably never make it. But for volatile or low-volume stocks, it is quite possible that your order would execute even if your price is far from the current market price. It all depends on whether the stock price ever reaches your specified price.When it does, your order will execute immediately. One of the benefits of limit order is the ability to cancel the order prior to execution. While your order waits for execution, you can cancel your limit order before it is executed. This is unlike market orders, where orders are filled immediately upon placement with little chance for cancellation.

Limit order means the maximum price you are willing to pay or the minimum price you are willing to receive per share for your order. It is, however, quite possible that you may even end up with a more favorable execution than your limit. For example, if you have placed a limit order to buy Ford stock at $50 per share and the stock declines to $49 by the time your order is received, chances are that your order will be filled at

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Copyright and Disclaimer
Book Chapters
Table of Contents Copyright and Disclaimer Foreword Money
Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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