On the Necessity of Using Limit Orders: GSG Price Spike

Here is an example of why it is prudent to use limit orders on most ETFs and ETNs. The iShares S&P GSCI Commodity-Indexed Trust (GSG) was trading calmly at $26.15 around 9:25am (CDT) yesterday morning.

A minute later, a flurry of buy orders hit. Apparently, they were all “at the market” buy orders, because what happened next can be seen in the screen shot below:

click to enlarge

Tick level analysis reveals that this was not one large order but a large series of orders, all less than 5,000 shares each. However, it may have been just one or two buyers utilizing an algorithm without the limit order option enabled, or a computerized auto-trading program may have run amuck.

More than 60,000 shares changed hands at prices above $29 (a 10% premium). Approximately an hour later, a single trade for 47,000 shares took place at $26.08, with no more than a three-cent move in the price. That’s the power of using a limit order.

Disclosure: no positions, but considering one (with a limit order)

Comments

[D333GS:]

I saw that and thought it a little odd, well over Mil.5$ and no understanding of a limit order? Unlikely , more like a strategy to get some attention.

Mar 20 05:10 AM

[User 352668:]

After missing a few buys and sells I went back to market orders for the last few trades. Think, now, that there is good reason to stay with limit orders. Thanks.

Mar 20 08:48 AM

[oldpbass:]

Re: Limit orders.
I recently put in a fairly small buy order for an issue at a few cents above the actual market. I thought I'd give the "limit price or better" an inexpensive little test. You can forget the "or better" portion. This was thru one of the biggest discount brokers...maybe the biggest.

Mar 20 04:46 PM