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This is a big problem and it only gets
worse with "market orders". Because of that, we are really
against anyone placing a market order to buy a stock, before
the market opens. Here is why: Let's say you call your broker at 8:30
am and tell him you want to buy 500 shares of XYZ "at the market". You
are telling him that 1) you are willing to take XYZ at whatever price
it is trading at when your order comes up. Therein lies the problem.
Remember we are at the mercy of the market makers (the guys who make a
market, or warehouse the stock for us to buy).
They are privy to a lot of information
folks and one of the biggest advantages they have is that they see all
the orders for the particular stock.
Tip!
A reliable online stock trading site is one that provides you tools
such as online stock trading quotes which are essential in making
educated stock trading decisions. Up-to-date quotes can give you
accurate information regarding stock prices.
So here is a very typical situation.
When you told the stock broker (or placed your online order) to
buy XYZ "at the market" you have given the market maker the ability to
"fill" you (or in other words execute your order) basically whenever
they want. So let's suppose XYZ opens the next day at 52 (remember you
liked it at 50) and instantly runs to 53.50 on all the orders that are
getting filled. Now that market maker has your order in his book and
you have agreed to let him fill you at "wherever the market is
trading".
Let's say the market maker
sees the new orders starting to dry up. So what do you think he will
do when the new orders stop coming in?? He will fill your market order
is what he will do! So you will get filled at 53.50 even though that
is the exact high of the morning and it's already pulling back. So in
a matter of a few minutes, XYZ can be back to 51. but guess what? You
own it at 53.50, meaning you are in the hole already. This is
unacceptable.
When you place a market order
you are putting yourself on the "wheel", you might call it the "wheel
of unfortune". Basically, the rules state that your order will go on a
numerical "wheel" and your order goes on the wheel at the bottom, and
one by one as the wheel rotates towards the top, orders are removed
and filled.
The idea is a "first come,first
served" concept like standing in line. But in the real world, it
doesn't work that way all the time. A certain amount of "market
orders" are reserved for order execution at the "discretion of the
market maker". Now if he has your order in his hand and he sees a lot
of demand for the stock, do you think he will put you in at 52 while
he has all these new orders flooding his books, or will he fill them
first and when they dry up, use yours? We suggest you know the answer.
Tip!
They often quote shares which are listed, usually on the nasdaq,
and it is within my experience for this to occur whilst the price of
stocks rises as predicted. Believe me when I say that I was caught,
and the the stock prices were being manipulated (this was the
subject ultimately of an SEC investigation).
So, remember these lessons. First
never ever place a stock order "at the market" before the
market is open for trading. Your chances of getting the stock you
want, even remotely close to where it's trading is poor at best. We
don't even suggest it while the market is open, but at least you have
a "fighting chance" then. Next, buying a stock without getting a
"feel" for the trading day is often suicide. In other words, if you
send in a market order to buy a stock before the market is open, you
are going to get that stock even if the market is in pull back mode
and your stock falls like a rock. This is not a wise idea friends.
So we will leave you with this:
trying to buy a stock before the market even gives us a clue as
to which way its going to go is a bad idea. Sending in a market order
to buy a stock compounds the problem and assures you that you will be
pretty disappointed! Next time we will look at the remedy for this
problem.
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