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)