Question

Compare and contrast market orders and limit orders. What are the positives and negatives of each type of order? Which are you most likely to use for your personal investing and why?

Answer 1

Market orders are transactions that are meant to execute as quickly as possible. The transaction is executed either at the present price or the market price. On the other hand a limit order sets the highest or the lowest price at which the individual will be willing to buy or sell a stock (depending on whether the individual is a buyer or is a seller).

Positives and negatives of market orders – The primary positive of market orders is that the speed of completing the trade is very high. In terms of negatives price of security is negative in such an order.

Positives and negatives of limit orders – The primary positive of limit orders is that primary focus is on the price of the security. In terms of negatives limit orders may not be executed immediately and may take some time for completion.

For my personal investing I will use limit orders. This is because I would like to have a greater degree of control over the buying and selling prices. I will have the assurance that the market entry or exit point is at least as good as the specified price. As such my risk exposure will be minimized.