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- Sep 17, 2008
First thing's first, you always want to take liquidity, never give it.
Placing a limit order that is far above or below the NBBO is giving liquidity to the market. Market will know a trading range from idiots that do this. You'll also have institutional traders front running you if you and them think the stock is going up. Also, if they (broker) get two orders, yours (retail) and a large institutional order, and the institutional limit order is priced below yours, they'll fill your order, moving the stock lower as they fill more sell orders, and fill the institutional buy order, resulting in an almost immediate loss for you from the get go.
Placing a market order is taking liquidity, but you never know how much you'll purchase the shares for. The NBBO might be $20, but that may be from quote stuffing algos/HFT.
So, to dumb it down, always place limit orders around the NBBO. Have a price in mind, and when it reaches that price, limit order it. NEVER do a market order.
Also for all you day traders out there, pull up level II quotes out to 4 decimals. Look for subpenniers. This a lot of the time is banks and HFs frontrunning retail traders like you in anticipation of the stock going, and lack of subpennying might mean the stock's headed down.
Placing a limit order that is far above or below the NBBO is giving liquidity to the market. Market will know a trading range from idiots that do this. You'll also have institutional traders front running you if you and them think the stock is going up. Also, if they (broker) get two orders, yours (retail) and a large institutional order, and the institutional limit order is priced below yours, they'll fill your order, moving the stock lower as they fill more sell orders, and fill the institutional buy order, resulting in an almost immediate loss for you from the get go.
Placing a market order is taking liquidity, but you never know how much you'll purchase the shares for. The NBBO might be $20, but that may be from quote stuffing algos/HFT.
So, to dumb it down, always place limit orders around the NBBO. Have a price in mind, and when it reaches that price, limit order it. NEVER do a market order.
Also for all you day traders out there, pull up level II quotes out to 4 decimals. Look for subpenniers. This a lot of the time is banks and HFs frontrunning retail traders like you in anticipation of the stock going, and lack of subpennying might mean the stock's headed down.
