Could you explain the difference between 'limit order' and 'stop limit orders'?
A limit order is an order to buy or sell a security at a specified price or better. A stop limit order is a limit order which takes effect only after a specified price has been reached. For example, suppose you own a stock currently trading at $10 but would like to avoid loss if its price moves against you. You might enter a stop limit order which becomes activated as a limit order of $7 or better if the stock ever trades below $8.50. Note that this procedure does not provide a 100% guarantee of a sale at $7 or better if the stock trades below $8.50 since the stock could gap down from $10 to, say, $6 in the face of bad news. In that case you would have an active limit order to sell for $7 or better that would likely go unfilled (at least for a while).
When you place an order, which method do you use the most?
'Market', 'Limit' or something else?
Regarding market vs limit orders: I suspect that it wouldn't be difficult to find representatives of both extremes on SI: those who think it's heresy to ever use a market order and those who argue that you shouldn't let a winner get away or fail to sell a loser for the sake of an extra 1/8th point. For some reason, in my experience, the latter folks almost always turn out to be stock brokers <g>.
I'm somewhat hesitant to answer the question about which method I use (though I will eventually), since I'm not sure this is a case of one method being best for all investors/traders. For example, the answer may depend on how quickly you need to initiate or exit the position, how long you expect to hold the position (is it a day trade, a swing trade or a long term investment), how skilled you are at assessing short term trends in the price movement of the stock in question, your tolerance for loss (or opportunity loss: letting a good stock get away because it never hit your buy limit), how quickly your broker can execute orders, whether it is an exchange traded or NASDAQ stock and undoubtedly a myriad of other factors. What works for me may not work for you.
Recognizing the fact that I think one size doesn't fit all, let me now answer the question. I tend to use limit orders almost exclusively. However, some of my limit orders tend to be pseudo market orders - that is limit orders to buy at the ask or sell at the bid. I think the last time I used a market order was about six months ago. It occurred with a stock that I sensed (correctly as it turned out) was about to go into freefall during very fast trading. Under the circumstances, there seemed to be no guarantee that any limit order I submitted would not be "traded through" before it was visible. Under these circumstances I emerged with only enough of a profit on the trade to buy a Big Mac, but more importantly I avoided a big loss on the position (I think the price fell more than 10% before stabalizing temporarily). So there is definitely a role for market orders if you don't possess lightening quick reflexes and a direct order entry machine.
Oh yes, one more thing - I've never used a stop limit order in my life (so you may wish to have confirmation that the above definition is correct <g>). While I think it is crucial to know when to take losses, I prefer to make loss taking subject to decision making in each individual case rather than letting a mechanical rule make the decision for me. OTOH if one has difficulty taking a loss (for example if some of your day trades have become long term investments) a stop limit order may be a very useful tool.
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