In an earlier post I discussed how to avoid problems when buying Mutual Funds. In this posting I’ll discuss the best way to but stocks and ETF’s.
Let’s examine how people normally buy a stock or ETF, they just enter the number of shares and hit “Buy”. This is what is called a “Market Order”. You agree to buy at whatever the current “ASK” price is. Here are some suggestions on how to buy at the right price regardless if you are a short term or long term investor.
Do not place a buy or sell order after hours or over a weekend. Early morning volatility can be huge. Large institutional blocks can get moved during the 1st and last hour of trading every day. This results in the little investor, you and me getting our orders priced at a less preferred level. Take a look at recent Apple trading ranges in just 1 day.
Here is a morning spread showing market large gaps between the “Buy and Sell” prices for a common stock.
Always use “Limit Orders” when buying and selling. A Limit Order allows you to specify an exact price you want to buy or sell at. It provides some level of protection. For a long term investor you can easily place an order for your “watch list” stock at a recent low and just wait for the price to come down. You can choose “good till canceled” GTC to wait for your price.
Here is an example of a Limit Order.