How to place a market order?
A market order can be placed with the software that is provided by the brokerage. It’s generally the default order in the order type. A market order can be placed almost instantly except for the stocks that are being traded in a very high volume at a particular instant.
While a trader hopes to transact the share at the current price when the market order is placed, the actual price they’ll be paying or receiving depends on when the market order placed in the queue will be executed. Every executed order affects the price of the stock and that’s why a trader rarely receives or pays the price they started to trade for. However, the good news is that most of the time, the trade is executed at a very nearby price except for the instants when slippage is very high.
When to practice a market order?
Executing a market order involves paying lesser commission charges and therefore most of the portion of the profit belongs to the day trader especially when the volume of securities such as stocks, ETFs, and futures is high. However, in case of slippage, a market order can bring loss to the trader.
While market orders aren’t preferred orders for a day trader, they can be executed when the market is moving against them to sell out the securities. In this case, as the market is moving quickly, a trader doesn’t have to worry about slippage.
How do limit orders work?
By the usage of Buy limit orders, a trader is guaranteed to buy a security at the set price but it’s not insured if the order is going to be executed or not. Similarly, selling a security with sell limit orders allow the trader to control the execution price but doesn’t ensure that the guaranteed execution of the order.
When to use a limit order?
Depending upon the traders’ strategy, usage of a limit order can be widespread. However, while dealing with highly volatile shares, using a limit order can bring relief to the trader. Moreover, for a day trader, to benefit from the volatile market, setting a limit is essential, especially if they are working with high leverage.
When the market is volatile and a trader is fearful to use a market order, a limit order can serve the purpose. Moreover, if a trader isn’t watching the price movement of a stock and they have a set a specific price in the mind they can take out from the security with the technical analysis, a limit order can work well.