I ran into the following information on epinions about discount brokers and market orders vs. limit orders. I didn't even know there was a difference.
"Most investors are attracted to those TV ads from brokers such as Ameritrade, Datek, etc where they advertise such cheap commissions of $8 or something ridiculously low. What they don't realize is that the commission is for market orders and limit orders cost considerably more.
A market order is an order in which the trade is filled at the "best possible price" at the current time. If an investor is in a hurry to buy or sell a stock, then a market order is what he needs to place. But, as it is a market order, the price that the trade gets executed can be much higher or lower than the current bid and ask, depending on when the trade gets filled. Market orders are supposed to be executed as soon as it is received but sometimes if there are many market orders, it may take a little while to be executed. What some investors also don't realize is that if you place a market order, that the broker could be buying or selling your shares from its own inventory, at whatever price is supposedly trading close to. I find that a scam as the broker knows perfectly well what the current bid and ask is and can decide to get the best price for the firm to sell or buy the shares to/from you. If you check your trade confirmation carefully, you can easily determine whether your order was filled from the broker's inventory or from another broker. If it says that the broker was acting as the "agent" for the transaction, then you bought your shares from another broker or investor. If it says that your broker was acting as "principal", then your broker sold or bought the shares from its inventory.
As market orders are dependent on the current bid (highest price a purchaser of a stock is willing to buy) and ask (lowest price a seller of a stock is willing to sell) prices, you may pay much more for a stock or get much less from a sell than you have intended. Unless you are in a hurry to buy or sell a stock, I would recommend placing a limit order for the current "market" price rather than placing a market order as you will get filled on the order at the price you stated. For example, if the current bid price of stock XYZ is at $10 and the current ask price is $10.05, rather than placing a market order to buy XYZ, if you place a limit order of $10.05 (the ask price), you will be almost guaranteed to get filled at $10.05 almost immediately as you've hit the ask price. But, if you place a market order, even if the current bid and ask price are the same, you may get filled at $10.10 or more if the market participants see your order and adjust (remove their ask prices) to $10.10 or higher. Yes, there are many market participants out there (including daytraders who profit from this) who have the real time quotes with the bid and ask lots and the breakdown of them who can profit from the sudden market order that you place. I always place limit orders so that I'm guaranteed of getting filled. And, sometimes, you may get filled for less than the ask price if the price goes down. And that has happened to me a few times too."
Pasted from <http://www.epinions.com/finc-review-7253-DCFC5C5-39FC848B-prod2>
So to help me (and maybe others) learn, do you prefer to place Market Orders or Limit Orders? And why?
Thanks,
Lady