ETF limit orders?

Now that it's available for no extra cost at Scottrade and elsewhere,
are folks using limit orders rather than market orders for ETF's? Or
any of the fancier kinds of orders (trailing limits, shorts, etc)? I
have found the limit orders (where you set your min or max price) quite
fun and rewarding, altho could lead to trouble.

I gave a try on a lightly traded ETF that stayed essentially flat for
the day. Actually it looked like there was a wall of potential limit
sellers and buyers seperated by a dime per share. Then the poor market
orders would come in (saying "trade with me at whatever price you
want") and get zapped like a bug in those electric traps, by whichever
side cost them a dime.

Pitfalls would be if the price pulled away in the wrong direction while
you wait. Esp if you are dumping one etf to get into another, you may
fish around for an excellant selling price on the first but then end up
getting burned in buying the second whose price has meanwhile rocketed.

Anyway, this can be unexpected fun for mutual fund traders and market
orderers who so often get stuck with disappointing trade prices out of
their control. There are some specialized kinds of limit orders that I
can't understand based on their online descriptions, but maybe better
to not get too fancy...

Re: ETF limit orders?

There are many types of trades for EFT, that are also available for stocks
too. ETFs trade just like stocks. You can place a Market Order where it is
filled at the prevailing market price. If you are trading a liquid
security, i.e. lots of trading volume, that has a small bid/ask spread, you
will do well to place a Market Order. If you are placing a buy order on a
thinly traded ETF that has a big spread between the bid & ask, it is best to
place a Limit Order. The problem is when you need to sell this security you
might not get the best price for your order. Again a Limit Order might help
but doesn't guarantee the best sell price. I always place Sell Stop orders
for all my open positions. This insures that I limit my losses, but doesn't
always give you the best price. There are variations on these, such as a
Sell Stop Limit, but now we are getting complicated. Try to study up on all
these various methods, but try to keep it simple.



It reminds me of the lady who wanted to buy a hot, new internet issue in
1998. She wasn't able to get any shares as an IPO. So she called her
broker and placed an order for the first trading day. The IPO was priced at
$30/share but there were a lot of buy orders and it gapped up to $80/share
where her order for 500 shares filled. By the market close it backed off to
$40. On the first day she had lost 50%!! A limit order would have saved
this from happening.



"dumbstruck" <> wrote in message
news:
> Now that it's available for no extra cost at Scottrade and elsewhere,
> are folks using limit orders rather than market orders for ETF's? Or
> any of the fancier kinds of orders (trailing limits, shorts, etc)? I
> have found the limit orders (where you set your min or max price) quite
> fun and rewarding, altho could lead to trouble.
>
> I gave a try on a lightly traded ETF that stayed essentially flat for
> the day. Actually it looked like there was a wall of potential limit
> sellers and buyers seperated by a dime per share. Then the poor market
> orders would come in (saying "trade with me at whatever price you
> want") and get zapped like a bug in those electric traps, by whichever
> side cost them a dime.
>
> Pitfalls would be if the price pulled away in the wrong direction while
> you wait. Esp if you are dumping one etf to get into another, you may
> fish around for an excellant selling price on the first but then end up
> getting burned in buying the second whose price has meanwhile rocketed.
>
> Anyway, this can be unexpected fun for mutual fund traders and market
> orderers who so often get stuck with disappointing trade prices out of
> their control. There are some specialized kinds of limit orders that I
> can't understand based on their online descriptions, but maybe better
> to not get too fancy...
>

Re: ETF limit orders?

I suggest you get in the habit of always placing limit orders. Then
there can be no surprises, and on top of that, you are discouraging the
middlemen from ripping off extra pennies between you and the
buyer/seller. If you say you are happy with a market order you have
just given the broker/market maker a gift, because they can give you
any price they want really.

Once nice approach is to place long lived orders, say good for 30 days,
after identifying a fund you are interested in but not desperate to
buy. A limit buy order is after all a "bid" price, like at an auction.
You are saying -- I will pay no more than $39.99 for this stock and my
bid stands for X days. Take it or leave it.

Indeed, one of the important things to learn about trading in capital
markers is to never get desperate to buy anything. If you can get a
bargain price, that is excellent. You have to be willing to walk away
from purchases. Note the difference there between stocks and the
mutual fund approach -- where a salesperson encourages you to buy and
hold ASAP.