A little tell of the benefits of limit orders
Do you use limit orders?
A better question than that is do you use limit orders effectively?
I recently had a situation happen that compelled me to write this article.
To start with let’s cover what a limit order is.
When you first started investing chance are that you started out by placing market orders. A market order simply tells your broker that you do not care what the current price is, you just want him to buy you “X” amount of shares at the current market price.
This is a very simple way to place an order. Truth be told over the long term it will not make much difference in what type of order that you place.
After you have been investing for a period of time and have placed a few market orders, you may decide that you no longer want to pay the market price per share anymore.
I mean after all, you have done your homework and you know exactly what price you value the company at. Well this is the perfect situation for you to start using a limit order.
A limit order simply tells your stock broker that you want to buy “X” amount of shares at “Y” price per share. This is a great tool to have in your arsenal to be able to acquire more shares at a smaller cost basis.
So let’s talk about the importance of using limit orders!
Recently, as you may know I bought more shares of XOM. Now I didn’t actually acquire them on the day that I originally placed the order. That is simply because I originally placed a limit order that was good for that day only. Unfortunately, the share price of XOM didn’t reach the price that I had listed on my limit order.
So despite feeling a little bit bummed about this, I know that being patient is the name of the game. So I decided that I would have to wait until the share price came back down to a price that I wanted to pay.
Luckily, I didn’t have to wait long because just the very next day the share price dropped a little more than a dollar below the price listed on my limit order from the day before.
Since I was able to get a cheaper price than I originally wanted, I simply placed a market order and got the shares at an even better price.
My patience had paid off. If I had set a market order on the first day, I would have paid a couple more dollars than what I ended up paying.
I was able to do this simply by doing my research, setting a limit order at my desired price but when that order was not filled that day, I found the opportunity to get it even cheaper the following day. All because I had chosen to use a limit order instead of a market order.
So the benefit of the limit order really paid off for me!!!
If you have a great situation where a limit order has paid off for you, I would love to hear about it.
As always I look forward to reading all of your comments and questions, until then….. happy investing!
-Jason from MoreDividends.com
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