Should I Place a Market Order?

When you buy stocks, there are several different ways to place an order. If you sign up with Sharebuilder, you will be charged $4 per order if you place an automatic trade that takes place on the third Tuesday of the month. Doing this will save you on commission payments, but will it earn you the most money?

Yes, placing a market order is more expensive, $9.95, but sometimes it might be the smarter move. A market order is placed immediately, as long as the markets are open. For example, if you decide you want to buy 100 shares of Google right now and it the markets are open, if you place a market order, your shares will be bought at the current price.

The benefit to placing market orders versus automatic orders is that you can get the price you want right away. Sometimes you will want to buy a stock right away because you think the value will go up soon. If you buy it now in the first week of the month, it could have already gone up a few dollars by the third Tuesday, which would mean you've lost potential money. Let's say you could either buy 100 shares at $50 now, or you could wait two weeks until the third Tuesday. You decide to wait in order to save the $6 difference in the commission fee. It comes the third Tuesday and the price is now $53. You buy it at $5,300. It cost you directly $4, but you could have made $300 if you bought it earlier, so it actually cost you $300 plus the $4 fee minus the $6 you saved by passing on the $10 market order fee for a total of $298. That is a significant amount of money.

It could have gone the other way thought, too. Maybe you bought it now for a total of $5,000, but in two weeks it only cost $4,800. This is the choice you have to make. I recommend that if you have an automatic plan set up every month, go for the $4. This is effective dollar cost averaging. If you are buying many shares at a time and actively trading, you should place market orders when you feel the right time is. This can save a lot of losses. You have to always be strategic in how you buy and sell stock no matter how active you are.

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