If you’re anything like me then you think that once you click on the appropriate button, or get off the phone with your stock broker, your order speeds off to be filled at whatever price the stock is currently trading at. How wrong I was.

After placing an order to buy a stock recently, I was shocked to discover that my order did not speed off and was not filled nearly instantaneously despite my broker’s “5 second execution guarantee”. This perplexed, befuddled, and scared me to be quite honest. I had placed the order anticipating that the order would be filled almost right away, and had assumed that the order would be filled at a certain price. “What if the stock price jumps?”, I thought. I’d be paying more than I wanted to for this stock. Rather than risk it, I canceled the order before it could be filled. (I won’t even comment on whether I should have been buying a stock that I was so ready to give up on, based on the fact that the stock had actually gone up in price.)

So why didn’t my order go through right away as I expected it too? After all it was a no-fuss no-muss market order. Just buy it at the stock’s current price no worries about the bid-ask spread or anything like that. Right?

Not so much. Turns out that the bid and ask spread *do* effect market orders (in many ways) and that a stock purchase goes through a number of steps and can take any number of paths before you actually own the stock you set out to buy.

For an in-depth explanation from someone who actually knows what they’re talking about Take a look at these Investopedia articles:

Author’s gravatar

Good stuff, thanks for the links. I’ve been meaning to call my broker (scottrade) and ask how they perform my orders (usually limit orders). Its good to know how all the players in the game operate… brokers, MMs, and investors alike. I once put in a limit order to buy at the ask, but after about 5 minutes the ask jumped and my order had not gone through. So I called my broker and told him what happened and he completed the order for me at my limit price with no extra charge.

Author’s gravatar

I use limit orders especially on the microcaps and thinly traded stocks. I definitely use limit orders on options.
As far as I can tell, Schwab doesn’t charge extra for llimit or other special orders.

Comments are closed.