When investing in the stock market, most investors place “market orders” or “limit orders.”

With a limit order, you specify the highest price you are willing to pay to buy. The main risk here is that you won’t get a fill for your order if there is no stock available at or below your price.

This introduces a filtering mechanism that can cost you money, especially if you set your limit below the current market price. If you set a price limit, some of your orders will go unfilled, since no stock is available at the price you want to pay.

However, an unfilled order is much more likely with your best choices, since they are far more likely to shoot up faster than you guessed. But you’ll always get a fill on your worst choices; they’ll come down to meet your price, then go lower.

(We cover all the main aspects of investing in the stock market, including placing an order, in our free report, “Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada.” Click here to claim yours now.)

For most investors, market orders are a better approach than limit orders

A market order is an order to buy or sell a specific number of shares at the best price available when you place your order. In contrast to limit orders, market orders are almost always filled within a very short period of time — in minutes, if not seconds.

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However, you only learn the price you paid (for a purchase) or received (for a sale) after the order is filled. The market price may change, for or against you, between the time you place the order and when it is filled.

In general, most investors should use market orders when buying or selling widely traded shares. That’s because the market-order risk of occasionally paying too much is more than offset by the limit-order risk of missing out on your best ideas.

Limit orders may be useful for thin-trading shares

With thin trading shares, you may want to put a limit on the price you are willing to pay if you are buying (or the price you are willing to accept if you are selling). If so, set your limit on buy orders above the price of recent trades. It’s better to pay a little more or receive a little less than to miss out entirely on your best investing ideas.

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