Hi ams,
I would like to return and pick up where I left off. The question is... which is better on the NYSE, mkt. or limit orders. I agree with you that it's hard to generalize. A limit order I think we agree is clearly better if the stock is stationary. If it is shifting I concede there are situations, i.e. trends, where a market order is preferable. In other moving market situations though, e.g., oscillatory (not that this is realistic), using a market order you risk buying at the high or selling at the low, getting whipsawed. So if the stock is moving you may do better or you may do worse using a market order.
One difficulty I am having is with the notion that the investor can determine ex ante whether a stock is moving or stagnant. Although we can always look back and see where the stock has been, without a crystal ball we don't know what to expect what's coming next. The stock may be flat, or caught in a trend continuation, or about to reverse itself. We just don't know. If the price action is higgledy piggledy, as I suggested previously, the chances of a reversal are about as good as the continuation of a trend. There are 3 possibilities: flat, trend continuation, and trend reversal, If the stock is in a trend continuation the market order works better, but in the other 2 situations you do better (I think ) with a limit order.
In sum, my position is this. You dont' know in practice whether the stock will continue "moving" or not. That's something that can be judged only with hindsight (or a crystal ball). Pricing action in normal times seems often to me to be higgledy piggledy -- though not in Oct. 1987 collapse I grant you! With HP movements there are 3 possible outcomes, and the market order only works in one out of the three. It is inferior to a limit order in the other two cases. The combined probability that one of these other two cases occuring is better than .50. Consequently, I guess I'm back to my original position that only limit orders should be used on NYSE trades.
I'll react to your SOES remarks at another time.
Geoff |
