The importance of Limit Orders

Here is an example in the peril of placing ‘market orders’…..

especially at the open of the trading day or following a substantial announcement or event.

Overnight, Google announces a $1 billion equity investment in nonvoting convertible preferred CME Group stock.

As the 15 minute intraday chart below illustrates, CME closed the previous days trading at $220.

The news was announced after the close.

The next day, trading in CME common stock opens at $230, which is 4.5% higher from the previous days closing price…….to only see it steadily decline through the day and close at the same price as it did yesterday.

I’m quite sure there were many people who entered a ‘market order’ to find out they paid 4.5% more than yesterdays price without understanding that this could actually happen.

I hope the stock goes up (for their sake) and hope that it doesn’t fall further, but after all hope is not a strategy.

November 5, 2021

by Rob Zdravevski

rob@karriasset.com.au