Best Type of Trading Order: Limit or Market?


You need to understand the difference between
a market order and a limit order. With penny stocks always use limit orders
when buying or selling shares. I will explain why you should use limit orders
with penny stocks, what can happen when you don’t, and even the one biggest downside to
them. Check this out! Hey guys, if you want to profit from trading
penny stocks, or any kind of shares for that matter, then you need to know what I am about
to explain. First I wanted to say I think you guys are
amazing, and you will get this stuff and be making money from trading penny stocks no
problem. Subscribe to the channel, like the video,
share with your coworkers, yada yada. Now, unless you specify the type of order
you want to use when you buy and sell shares, then you are getting the default, or standard,
market order. This simply means that you are buying or selling
at the market price, so you get whatever the shares are at when you enter your trade. With a standard market order, you are simply
telling your broker to buy, and you will find out later how much you wound up paying. This is how most new investors trade, by using
market orders… but starting right now, from this moment, you should only use limit orders,
in my opinion. (My lawyer makes me add those last 3 words). I will get into limit orders, and how they
will be far superior when trading penny stocks, but first it will help to explain how Market
Orders might already be costing you. With thinly-traded penny stocks, the act of
your buy or sell market order can push the prices around, and that volatility can cost
you. Consider this example – you go to buy $2,000
of a 10 cent penny stock. However, there are only $300 worth being sold
at 10 cents, then another $250 at 12 cents, then another $4,000 being sold at 15 cents. Your $2,000 purchase will get you some shares
at 10 cents, a few more at 12 cents, then the majority of them at 15 cents. The worst part is that once your order is
filled, meaning you got $2,000 worth of the penny stock, your buying demand ends… quite
often the shares drop back down to 10 cents, right where they were in the first place. You just paid close to 15 cents for a 10 cent
penny stock, and are already down 33% just because of your individual purchase. “There’s got to be a better way,” right? What you can do is use a limit order. For example, you tell your broker, “I’ll buy
the stock at 12 cents or less.” In our scenario, your buying might push the
share price to that level, but it stops there. You will ONLY get shares for the limit price
you specified, or lower. In our example, that means you get some for
10 cents, and more at 12 cents, but none for any prices higher than your 12 cent limit. You never end up paying a higher price than
the limit you specified. The downside of a limit order is that you
may not get all the shares you wanted. Again, in our example, you would have only
bought a total of $450 worth of the penny stock, and pushed the price up to 12 cents,
but at least you will not have paid more than you wanted. You then have the choice of raising your limit
price, which typically will help you get more shares, or just come back another day to try
to get the rest at a price you feel is appropriate. Keep in mind, for every individual day which
you end up buying or selling some shares, you will pay another brokerage commission. If you buy shares of one stock on three different
days, that’s 3 commission charges.

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