Market or Limit?

[DLAKE]

Just curious what the community does when buying VTI in taxable for a long term investment on a consistent manner. Do you typically purchase with a limit order or market order?

I ask because I had a limit order this AM and feel like I would’ve benefited more if I had just used a market order as VTI has increased quickly. Just wondering if there is a significant benefit in doing one or the other.

[livesoft]

It depends. I don't think I need to explain more than that.

[Ben Mathew]

Limit orders may seem like they are safer than market orders, but it's actually the opposite. Unless you're better informed and faster than professional market makers, limit orders are a lose-lose proposition. See this post for an example.

Consider using marketable limit orders instead. This involves placing a limit order at a price slightly above the current market price (when buying) or slightly below the current market price (when selling). Order should always execute unless there is an unusual price change caused by a flash crash or some other such glitch in the system.

[J295]

Market.

[fwellimort]

Limit order.

We don't live in a perfect world. Flash crashes/spikes DO exist. And quite regularly too. You will see them in some S&P500 stocks basically every day especially in the after-market hours.

Limit orders are forced to take orders that are either at the limit price or better.
It's better to just have the limit order be a few cents above and the brokerage fill up the better price than take the risk of flash spikes in pricing due to illiquidity.


Unfortunately, we don't live in a perfect world and while we have high frequency firms removing as much arbitrage as possible, do note these stuffs do still regularly happen (on both spikes and crashes).
This particular one happened in the Singapore Stock Market 2 years ago. US is no different. I seen my fair share of those too in stocks within the S&P 500.

That said, what are the chances of a major ETF like VTI having this occurrence. Quite non-existent but never zero. Brokerages when you put limit order should get you the limit order price or better so I would just stick to having a higher limit order when buying by a few pennies.
Having stated such, I like to live dangerously and just use market order from time to time

[reln]

Just curious what the community does when buying VTI in taxable for a long term investment on a consistent manner. Do you typically purchase with a limit order or market order?

I ask because I had a limit order this AM and feel like I would’ve benefited more if I had just used a market order as VTI has increased quickly. Just wondering if there is a significant benefit in doing one or the other.

It's up to you.

If all you care about is execution, use market.

If you want to take the risk of not buying in exchange for potentially a lower purchase price, use 60 day limit.

[MrJedi]

I do limit buys at the current asking price and limit sells at current bidding price. This makes them execute immediately but then helps against those weird flash anomaly events.

[carolinaman]

I do market because VTI is traded so much that even if price increases it will still be close to price at time of order. When I decide to sell or buy, a small deviation in price is not going to deter me. I do not want to monkey around with submitting multiple trades to get a price a fraction higher of lower.

[dukeblue219]

For highly liquid stocks/ETFs like VTI, SPY, VOO, and most big name companies I just use market orders for routine investments. You're not going to get a terrible price and you can set it and forget it without checking back to see if your bid was filled later.

Its a problem with very thinly-traded stocks, large block buys, after hours, etc.

I will confess to occasionally doing a limit order at a round number just below the current price, but that's not necessarily logical

[nisiprius]

I don't like ETFs and don't use them often. I've bought ETFs maybe about twenty times in my life, if that. The ETF mavens all say it's perfectly easy and there's nothing to it. But the only times I've used limit orders, I could never get them to execute.

After the Flash Crash everyone said you "had" to use limit orders, so I tried. I really did. I tried to buy ETFs with limit orders at Fidelity about three times. In each case it was the iShares TIP ETF, on a day when the price happened to be rising--nothing dramatic, but rising. So I was like "oh, goody, it's an ETF and I'm going to get a better deal than the end-of-day price I'd get with a mutual fund."

I don't know if the rising price was the problem.

I don't know if the fact that I was buying less than 100 shares was the problem.

In each case I could not get the trade to execute, even when I set the price at the full "ask." (The Fidelity website did not allow setting anything higher than the full "ask."

After trying and failing several times I always ended up giving up and placing a market order which--because the price was rising--was actually a trifle higher than if I'd just used a market order in the first place. None of the ETF mavens has been able to tell me what, if anything, I was doing wrong.

If you use a limit order expect that it may take you a couple of times to learn the ropes.

[AlohaJoe]

That said, what are the chances of a major ETF like VTI having this occurrence. Quite non-existent but never zero.

Why isn't it zero? What's the mechanism by which VTI would avoid actions under the Tier 1 LULD Plan?

[alex_686]

Market.

My broker give me free market trades. I execute in the middle of the day when the chance of a flash crash or other weird occurrence is low. Simpler. I tend to do about a dozen rebalancing trades a year so the risk is low.

[livesoft]

Example of when I use a limit order: I have $249.42 in my settlement account from a dividend. $249.42 / 3 = $83.14. I want to buy more ETF shares, but it is trading at $83.67, so I cannot buy 3 whole shares. If I buy just two shares at $83.67, then I will have $82.08 left in my settlement account. So I submit a Limit Order for 3 shares @ $83.14 instead. With the recent market volatility the trade just happens to be executed a few hours later and my settlement account ends up with $0.00.

I also have examples where a buy limit order failed to execute, but the next day equities dropped enough that I bought at a lower price anyways.

One can also split a purchase into multiple orders: Some as market orders and some as limit orders. One can submit multiple limit orders but at different (or the same) limit prices. One can edit (replace or cancel) limit orders after they are submitted, too. I find reasons to do just about any kind of order at any partiular time.

[Ben Mathew]

The Fidelity website did not allow setting anything higher than the full "ask."

Fidelity now lets you place marketable limit orders. There is a warning that your limit price exceeds the market price, but you are free to continue. I have been placing marketable limit orders on both Fidelity and Schwab recently and have been getting immediate execution at market price.

[anon_investor]

The Fidelity website did not allow setting anything higher than the full "ask."

Fidelity now lets you place marketable limit orders. There is a warning that your limit price exceeds the market price, but you are free to continue. I have been placing marketable limit orders on both Fidelity and Schwab recently and have been getting immediate execution at market price.

How does that work? It will buy at market price no higher than your limit order?

[lazynovice]

For any heavily traded ETF- which the recommended Boglehead portfolios should be in- market. If I was watching a very volatile day with a lot of ups and downs, I might consider a limit order but it would have to be very volatile.

[Ben Mathew]

The Fidelity website did not allow setting anything higher than the full "ask."

Fidelity now lets you place marketable limit orders. There is a warning that your limit price exceeds the market price, but you are free to continue. I have been placing marketable limit orders on both Fidelity and Schwab recently and have been getting immediate execution at market price.

How does that work? It will buy at market price no higher than your limit order?

Yes, that's how it would work. Since your bid is higher than the current ask, it executes immediately. The goal is to place a market order but protect against the (very small) probability of some sort of a glitch like a flash crash.

[roth evangelist]

A limit order is a form of market timing. I would just do a market order 95% of the time.

[hoofaman]

Limit order, wait until 10am, watch and resubmit until filled

[SmileyFace]

Market order.
I am not a market timer and I view limit orders as a form of trying to time the market.

[Jon Luskin]

Just curious what the community does when buying VTI in taxable for a long term investment on a consistent manner. Do you typically purchase with a limit order or market order?

I ask because I had a limit order this AM and feel like I would’ve benefited more if I had just used a market order as VTI has increased quickly. Just wondering if there is a significant benefit in doing one or the other.

Vanguard has a great resource on best practices when trading ETFs. (I always share it with my do-it-yourself investor clients.) I strongly encourage you to give it a read. You can find it here:

https://static.vgcontent.info/crp/intl/ ... 4%7C111324

EDIT: I hope that helps.

Good luck! /EDIT

[anon_investor]

The Fidelity website did not allow setting anything higher than the full "ask."

Fidelity now lets you place marketable limit orders. There is a warning that your limit price exceeds the market price, but you are free to continue. I have been placing marketable limit orders on both Fidelity and Schwab recently and have been getting immediate execution at market price.

How does that work? It will buy at market price no higher than your limit order?

Yes, that's how it would work. Since your bid is higher than the current ask, it executes immediately. The goal is to place a market order but protect against the (very small) probability of some sort of a glitch like a flash crash.

That is interesting, I wonder if any other brokers have this.

[Wiggums]

Just curious what the community does when buying VTI in taxable for a long term investment on a consistent manner. Do you typically purchase with a limit order or market order?

I ask because I had a limit order this AM and feel like I would’ve benefited more if I had just used a market order as VTI has increased quickly. Just wondering if there is a significant benefit in doing one or the other.

You have to remember that the bid, ask and last trade values are changing quickly. On something like VTI, a market order will get processed at the current price. A limit order is more important when the volume is low or pre/post market hours trading.

[Hyperchicken]

Market buy order = signing a blank check.

You commit to paying whatever the cost, no matter how high.

In practice, it probably does not matter when buying VTI or BND or any other ETF with huge trading volume.

[1789]

Of course market order. Don’t play games like that.

[Shallowpockets]

Sounds like your limit did not go because the price was rising. People who buy set a limit below the asking price hoping for a good deal. As you can see, if the price rises you may be out of luck or have to adjust upward and pay more than earlier when a market price would have executed at better than your new higher limit.
Such are the vagaries of the price action.

The spread of bid ask on VTI is usually pretty small. Maybe on a 100 shares it will amount to $3-5 difference. Is that significant to most BHs? Are they buying great quantities of shares?
Best to know the price action over the last few days and then highs and lows on those days.
A limit price is taking a chance.

[SantaClaraSurfer]

Market order for heavily traded ETFs (ex. SCHB) and most other purchases, as well. <<<< 98% of purchases.

Limit Order (relative to current Bid / Ask) rarely, for sporadically traded ETFs (ex. our ESG ETFs) or, defensively, for some trades on stocks in our 5% account. (ex. low volume stocks.)

It can sting to do a Market Order and get a price that doesn't reflect where the stock is trading, especially if you are a tiny fish purchasing an odd lot.

[fwellimort]

I don't understand how limit orders on ETFs are 'timing the market'.

If the market price is $5, just put a limit buy order for $5.20 or something of that sort.
VTI isn't anywhere near that volatile and usually, by the time you press 'buy', the price would be somewhere around $4.99 to $5.01 anyways.

Limit orders are meant to protect you from extreme scenarios. If your limit order is higher than market price, in a reputable brokerage, you should get the market price or better.
Shares like Tesla, Lyft, Alibaba, etc. are well traded around the world. And those shares have quite a few spikes from time to time in the day to day market. Technical glitches do exist and we don't live in a perfect world. Limit orders above the market price does protect an investor from facing a terrible fate.

Now, if one is using limit orders to fill potentially 'better prices' than the market, then I have no comments there.

[bondsr4me]

Limit orders for me.
I set my price and go with it.

[anon_investor]

I don't understand how limit orders on ETFs are 'timing the market'.

If the market price is $5, just put a limit buy order for $5.20 or something of that sort.
VTI isn't anywhere near that volatile and usually, by the time you press 'buy', the price would be somewhere around $4.99 to $5.01 anyways.

Limit orders are meant to protect you from extreme scenarios. If your limit order is higher than market price, in a reputable brokerage, you should get the market price or better.
Shares like Tesla, Lyft, Alibaba, etc. are well traded around the world. And those shares have quite a few spikes from time to time in the day to day market. Technical glitches do exist and we don't live in a perfect world. Limit orders above the market price does protect an investor from facing a terrible fate.

Now, if one is using limit orders to fill potentially 'better prices' than the market, then I have no comments there.

Do all brokers let you even make a limit order with a price higher than the current market price?

[calwatch]

For mutual fund-like execution I've started to like the Market on Open/Market on Close orders. These are not just generic market orders but go through an auction process for maximum liquidity. I know many mutual fund investors like the ability of just getting the NAV at close and this is the closest to that which I have found, and avoids buyer's remorse during the day.

https://www.nyse.com/article/nyse-closi ... ders-guide

[fwellimort]

Do all brokers let you even make a limit order with a price higher than the current market price?

Not sure. I know FIdelity has no problems with it.
Same with Merrill Edge.

[anon_investor]

Do all brokers let you even make a limit order with a price higher than the current market price?

Not sure. I know FIdelity has no problems with it.
Same with Merrill Edge.

I am not sure Vanguard has it, though I usually buy MFs at Vanguard. Good to know ME does, I will try it when I make my monthly ITOT purchase later this month in my ME account.

[senex]

Many people misunderstand limit orders.

A simple mental model is: a market order is a limit order with limit price of infinity (if buying) or zero (if selling). I.e. when you place a market order, you are saying, "any price is ok with me."

There are other constraints in the ecosystem besides your limit price (your broker enforces your buying power; Reg NMS requires all trades to occur within the National Best Bid and Ask during regular hours; Reg SHO implements circuit breaker prices; etc). Those constraints mostly make market orders "safe," in the sense that the ecosystem usually gives you a reasonable, fair price.

As an individual sending a market order, you are saying that anything that the ecosystem permits is ok with you. If some weird glitch or corner case gives you a fill at 10% or 20% or 100% worse price than you expected, you're happy with that.

I used to always use limit orders at marketable prices (every broker I've used supports it), because I'm not actually willing to buy at infinity or sell at zero, so I'd be lying to say I was. Note that, for instance, Nasdaq's order entry protocol doesn't even have the concept of a limit order; whoever actually transmits an order to Nasdaq (your broker, or internalizer, or whatever) needs to provide a limit price. Someone is providing a limit price; it might as well be me.

Recently I learned from an industry person that due to weird quirks of retail execution quality reports, you may have a higher expected price improvement when sending a market vs limit order. That is the only theoretical reason I know that favors market orders. I now sometimes use market and sometimes use limit, and I'm collecting data on my price improvement results.

[Katietsu]

Recently I learned from an industry person that due to weird quirks of retail execution quality reports, you may have a higher expected price improvement when sending a market vs limit order. That is the only theoretical reason I know that favors market orders. I now sometimes use market and sometimes use limit, and I'm collecting data on my price improvement results.

Anecdotally, I feels like this has been my experience. It will be interesting to hear about your results.

[ivgrivchuck]

Market order.

If there is a huge stock market crash going on (or similar extreme volatility event), I would use limit.

However I only trade highly liquid etfs.

[Ben Mathew]

I used to always use limit orders at marketable prices (every broker I've used supports it), because I'm not actually willing to buy at infinity or sell at zero, so I'd be lying to say I was. Note that, for instance, Nasdaq's order entry protocol doesn't even have the concept of a limit order; whoever actually transmits an order to Nasdaq (your broker, or internalizer, or whatever) needs to provide a limit price. Someone is providing a limit price; it might as well be me.

Good perspective.

Recently I learned from an industry person that due to weird quirks of retail execution quality reports, you may have a higher expected price improvement when sending a market vs limit order. That is the only theoretical reason I know that favors market orders. I now sometimes use market and sometimes use limit, and I'm collecting data on my price improvement results.

I would be interested in the results of this experiment. I know I am getting some price improvement with my marketable limit orders, so I would imagine that any difference would have to be pretty small, given that it all has to fit within the bid-ask spread. But it would be good to have an estimate.

[abuss368]

Just curious what the community does when buying VTI in taxable for a long term investment on a consistent manner. Do you typically purchase with a limit order or market order?

I ask because I had a limit order this AM and feel like I would’ve benefited more if I had just used a market order as VTI has increased quickly. Just wondering if there is a significant benefit in doing one or the other.

Hi DLAKE -

Over the long term investment horizon, it will not make a difference and is nearly meaningless.

Best.
Tony

[Dave55]

Just curious what the community does when buying VTI in taxable for a long term investment on a consistent manner. Do you typically purchase with a limit order or market order?

I ask because I had a limit order this AM and feel like I would’ve benefited more if I had just used a market order as VTI has increased quickly. Just wondering if there is a significant benefit in doing one or the other.

Hi DLAKE -

Over the long term investment horizon, it will not make a difference and is nearly meaningless.

Best.
Tony

Tony, You are right on the

Dave

[abuss368]

Just curious what the community does when buying VTI in taxable for a long term investment on a consistent manner. Do you typically purchase with a limit order or market order?

I ask because I had a limit order this AM and feel like I would’ve benefited more if I had just used a market order as VTI has increased quickly. Just wondering if there is a significant benefit in doing one or the other.

Hi DLAKE -

Over the long term investment horizon, it will not make a difference and is nearly meaningless.

Best.
Tony

Tony, You are right on the

Dave

Thank you sir!
Tony

[000]

For something like VTI I would use a marketable limit order (i.e. at or slightly above the ask). This is especially relevant in IRAs and such accounts to avoid overdrawing the settlement fund.

For less liquid securities I use limit orders usually within the spread.

[cchrissyy]

Just curious what the community does when buying VTI in taxable for a long term investment on a consistent manner. Do you typically purchase with a limit order or market order?

Market, always

I ask because I had a limit order this AM and feel like I would’ve benefited more if I had just used a market order as VTI has increased quickly. Just wondering if there is a significant benefit in doing one or the other.

Ask yourself, even if you did save a couple cents today times X shares purchased, why would you care about that in the long run? Did you buy so many hundreds of thousands of shares that saving a couple cents will make a difference in your old age? Probably not!

[UpperNwGuy]

Market.

[csmath]

Was it Vineviz or Livesoft that ran an actual experiment on this question? I don’t have time to search for it now but I recall following it at the time.

[placeholder]

Example of when I use a limit order: I have $249.42 in my settlement account from a dividend. $249.42 / 3 = $83.14. I want to buy more ETF shares, but it is trading at $83.67, so I cannot buy 3 whole shares. If I buy just two shares at $83.67, then I will have $82.08 left in my settlement account. So I submit a Limit Order for 3 shares @ $83.14 instead.

This is especially important for iras because you can't easily sweep cash in and out like a taxable account.

[csmath]

Was it Vineviz or Livesoft that ran an actual experiment on this question? I don’t have time to search for it now but I recall following it at the time.

Answering my own question now that I'm home and have a bit more time. It was a Livesoft thread that I believe I am thinking of. I think this is the thread titled, "Case study Broker trade executions"

And here is just one quote from it as the discussion evolved from brokerage trade execution times to include market vs limit orders and even open cross trading:

@ftobin, thanks for chiming in. Would you mind giving some specific examples of what you just stated when you have time please? That might help clarify terms ilke "passive", "aggressive", "protected", and "trade through" which in this context are unfamiliar to me. Thanks!

Passive = limit order on your side of the book (so someone has to hit *you* for the order to fill)

Aggressive = market order or a limit order into the other side of the book (so you hit someone else's passive order to get a fill)

Because of Reg NMS, quotes on exchanges are protected. What this means is that triceratop's situation is supposed to be prohibited. That is, the current best bid/offer (NBBO) on any exchange are protected, all other market participants are prohibited from making a trade at a worse price than the NBBO. The order is called 'protected' since it must be filled before worse prices can be filled.

So specifically, if the b/a is 63.83/63.88, and triceratop posts a bid at 63.84, once that bid is 'processed', no buy orders at 63.83 can be hit unless the 63.84 bid is hit first.

But because the rules (Reg NMS) are terrible, there are a million loopholes. What ftobin is stating is that odd lots (not multiples of 100 shares) are not protected. So this is why triceratop *could* have seen orders in the market seemingly go through his/her order. This is what ftobin means by 'odd lots are not protected'.

For what it's worth, I work in finance and even I didn't know this loophole. There are so many it is hard to keep track.

The other thing ftobin states is that brokers should want to fill odd lots since they are mostly noise. This is because any *real* trader will want to execute in round lots, so this implies that people who are willing to buy 5 shares aren't informed and therefore their orders are mostly noise. Market makers love noise since it tends to be bidirectional and annihilate. What they are afraid of is that the order for 100 shares is part of a mutual fund selling 100,000,000 shares of stock. This is what ftobin means by a good broker will want to fill odd lots rather than let them trade through.

Going one step further, every order you place at TD Ameritrade, VBS, Fidelity, etc doesn't ever get routed to an exchange. It gets routed to Citadel/KCG/Virtu/Two Sigma who then decide if they want to internalize that order. Retail order flow is very bidirectional so this is free money. This is why in the above example, a 'good' broker would often fill you internally at 63.84 once the broker sees a trade in the market at 63.83. They will fill you because 1) you are retail, so noise. 2) odd lot, so doubly noisy. 3) you are willing to trade at a price 1 cent higher than the market (almost like Citadel buys it from the market at 63.83 and then sells it to you at 63.84. If I recall from my Series exam, brokers are allowed to trade in front of you as long as they fill you within 100ms or something afterwards.).

If this gives you a headache, you are not alone. The US exchange system is needlessly complex. Would be better IMO to turn it into a single regulated exchange almost like a public utility. Exchanges like IEX just add to the complexity.

[Robert20]

Just curious what the community does when buying VTI in taxable for a long term investment on a consistent manner. Do you typically purchase with a limit order or market order?

I ask because I had a limit order this AM and feel like I would’ve benefited more if I had just used a market order as VTI has increased quickly. Just wondering if there is a significant benefit in doing one or the other.

5 years from now, it doesnt matter much whether you bought today 10.45AM time or 1PM time or 2.55PM.

[Fat Tails]

Many people misunderstand limit orders.

A simple mental model is: a market order is a limit order with limit price of infinity (if buying) or zero (if selling). I.e. when you place a market order, you are saying, "any price is ok with me."

There are other constraints in the ecosystem besides your limit price (your broker enforces your buying power; Reg NMS requires all trades to occur within the National Best Bid and Ask during regular hours; Reg SHO implements circuit breaker prices; etc). Those constraints mostly make market orders "safe," in the sense that the ecosystem usually gives you a reasonable, fair price.

As an individual sending a market order, you are saying that anything that the ecosystem permits is ok with you. If some weird glitch or corner case gives you a fill at 10% or 20% or 100% worse price than you expected, you're happy with that.

I used to always use limit orders at marketable prices (every broker I've used supports it), because I'm not actually willing to buy at infinity or sell at zero, so I'd be lying to say I was. Note that, for instance, Nasdaq's order entry protocol doesn't even have the concept of a limit order; whoever actually transmits an order to Nasdaq (your broker, or internalizer, or whatever) needs to provide a limit price. Someone is providing a limit price; it might as well be me.

Recently I learned from an industry person that due to weird quirks of retail execution quality reports, you may have a higher expected price improvement when sending a market vs limit order. That is the only theoretical reason I know that favors market orders. I now sometimes use market and sometimes use limit, and I'm collecting data on my price improvement results.

+1. If you are trading in a security with a lot of volume it doesn’t matter much. For a lower volume item I usually do a limit order just a few cents about the last trade price and it usually fills.

[SnowBog]

The Fidelity website did not allow setting anything higher than the full "ask."

Fidelity now lets you place marketable limit orders. There is a warning that your limit price exceeds the market price, but you are free to continue. I have been placing marketable limit orders on both Fidelity and Schwab recently and have been getting immediate execution at market price.

How does that work? It will buy at market price no higher than your limit order?

Yes, that's how it would work. Since your bid is higher than the current ask, it executes immediately. The goal is to place a market order but protect against the (very small) probability of some sort of a glitch like a flash crash.

That is interesting, I wonder if any other brokers have this.

This is what I do for trades made outside of market hours. Let's say I have $5k to invest, I'll figure out how many shares at close price I can buy, and then raise the limit price slightly to stay below my $5k but help the orders execute quickly at market open. It protects me from some large spike in price that would have resulted in a larger amount than I had to invest. (In which case I either wait and see if the price returns, or refine my price/shares accordingly.)

Note, while Fidelity and others support fractional shares, Fidelity only allows them during market hours - which isn't always an option for me. Likewise, I use "conditional trades" to attempt to automate most of TLH activities, but they do not accept fractional shares either yet. So I tend to limit shares purchases to whole shares just to keep my life easier...

[comeinvest]

...
Recently I learned from an industry person that due to weird quirks of retail execution quality reports, you may have a higher expected price improvement when sending a market vs limit order. That is the only theoretical reason I know that favors market orders. I now sometimes use market and sometimes use limit, and I'm collecting data on my price improvement results.

I know it's an old thread; but did you get any insight on whether market orders might get more advantageous price improvements than marketable limit orders?