Market or Limit order?
- Thread starter Gattaca
- Start date
I use MKT order to get out of a trade, such as a stop or exit
I use a LMT order to get into a trade, sometimes when I'm aggressive, I'll LMT right to the offer when long, or LMT the bid when shorting, so I don't get slippage.
I try not to LMT orders that are out of the market, I always LMT inside the market
I use a LMT order to get into a trade, sometimes when I'm aggressive, I'll LMT right to the offer when long, or LMT the bid when shorting, so I don't get slippage.
I try not to LMT orders that are out of the market, I always LMT inside the market
You ask an question that probably has no easy answer. It might even be a question that is really hard and probably ranks amongst the most complicated question that I am now contemplating. The debates that I have had with myself on this question have kept me up sleepless nights.
I can tell you with all my heart that traders like you and I "should" be using limit orders to lift offers and whack bids, but as ususal, there is much more to it than meets the eye. Embedded in your question is perhaps the Holy Grail if you can figure out when to use which, and within it may lie the whole of trading.
When I first contemplated this question, I thought it was trivial and required no thought. Funny how things turn out...
nitro
I can tell you with all my heart that traders like you and I "should" be using limit orders to lift offers and whack bids, but as ususal, there is much more to it than meets the eye. Embedded in your question is perhaps the Holy Grail if you can figure out when to use which, and within it may lie the whole of trading.
When I first contemplated this question, I thought it was trivial and required no thought. Funny how things turn out...
nitro
Limit order for entry and exit, using a buy limit above the market or a sell limit below the market which are basically market orders with worse fill prices, I am not trying to fill trades on retraces or buy the bid-sell the offer.
Entering a buy for instance, I would usually put my limit 1-2 ticks above the offer at the time of entry; sometimes the trade fills at the offer and sometimes the trade fills at the extra tick. Taking a profit on that buy I would place a limit sell order where I would want the profit. Exiting that buy I would place a limit sell order below the exit price by a substantial amount, I want no concerns about whether the exit will fill or not.
These could all be market orders, but I do want to know what my worst fill will be on entry, and these are this is the native order type on the cme and most of my trades are either euro or mini russell trades.
Entering a buy for instance, I would usually put my limit 1-2 ticks above the offer at the time of entry; sometimes the trade fills at the offer and sometimes the trade fills at the extra tick. Taking a profit on that buy I would place a limit sell order where I would want the profit. Exiting that buy I would place a limit sell order below the exit price by a substantial amount, I want no concerns about whether the exit will fill or not.
These could all be market orders, but I do want to know what my worst fill will be on entry, and these are this is the native order type on the cme and most of my trades are either euro or mini russell trades.
LMT entry, MKT exit usually works fine for me 
But there are exceptions to this general rule...
But there are exceptions to this general rule...
I totally agree with Nitro here. I think anyone who has deeply researched and analyzed that topic has very probably learnt a lot on trading.
Now as many things in that area, I believe there is no sure answer. Then, it's all again a matter of personal preference, but here is my shot.
Most of the time I hit the offer to go long and the bid to go short. I'll try to give some of my reasons.
I'm a full time trader. The mini Russell is my favorite playground. I'm also mostly a trend follower : usually try to take a couple nice moves per day (which could be moves as much as 2-4 points). But I also scalp for a few ticks to play reversals or range trades and thing is I never really realized the importance of the lmt/market order question until I got interested in very short term trading. And that brought significant changes to every aspects of my trading strategies.
Now, whether I scalp for a few ticks or aim for a longer target, my entries are almost the same. I'll go with the flow and want the market to keep going in the same direction right after I got in. When I hit the offer to go long, I expect immediate orders to eat the remaining offers and the bid to raise at my entry price. I will allow very thin adverse reactions, if none, because I have a reason to be in. When I place my order, I expect momentum.
Buying the bid or placing a buy lmt below the bid and then waiting to get filled is like expecting a "retracement" to get in.
If your sitting lmt order gets filled it simply means that the micro short term momentum goes against you and that you're in "trouble", at least in that micro time frame.
Searching an answer to that question, you will most likely end up studying market depth dynamics and games, orders flows.
And that journey is definetly worth it...
Ludovic
Now as many things in that area, I believe there is no sure answer. Then, it's all again a matter of personal preference, but here is my shot.
Most of the time I hit the offer to go long and the bid to go short. I'll try to give some of my reasons.
I'm a full time trader. The mini Russell is my favorite playground. I'm also mostly a trend follower : usually try to take a couple nice moves per day (which could be moves as much as 2-4 points). But I also scalp for a few ticks to play reversals or range trades and thing is I never really realized the importance of the lmt/market order question until I got interested in very short term trading. And that brought significant changes to every aspects of my trading strategies.
Now, whether I scalp for a few ticks or aim for a longer target, my entries are almost the same. I'll go with the flow and want the market to keep going in the same direction right after I got in. When I hit the offer to go long, I expect immediate orders to eat the remaining offers and the bid to raise at my entry price. I will allow very thin adverse reactions, if none, because I have a reason to be in. When I place my order, I expect momentum.
Buying the bid or placing a buy lmt below the bid and then waiting to get filled is like expecting a "retracement" to get in.
If your sitting lmt order gets filled it simply means that the micro short term momentum goes against you and that you're in "trouble", at least in that micro time frame.
Searching an answer to that question, you will most likely end up studying market depth dynamics and games, orders flows.
And that journey is definetly worth it...
Ludovic
nitro, lurefo,
Does what you say have anything to do with the fact that: the fundamental philosophy behind a limit order is counter-trend, whereas for market order it's trend following? For example, it just doesn't make sense for a trend-follower to use a limit order because he's fighting his own trading philosophy with his execution.
Does what you say have anything to do with the fact that: the fundamental philosophy behind a limit order is counter-trend, whereas for market order it's trend following? For example, it just doesn't make sense for a trend-follower to use a limit order because he's fighting his own trading philosophy with his execution.
limit in - limit out
FredBloggs
Guest
yes - pretty much imo.
mkt orders are initiating activity
lmt orders are responsive in nature