Beware: Market Orders Can Cost You

By habit I am an early riser and begin my review of the previous day's market well before the opening bell. When I get to my brokerage accounts and start getting quotes on stocks I am interested in I have noticed that there are Bids and Asks at extremes to the closing price. This can be anywhere from a few cents to significant numbers.

For example, Akami (AKAM) had some nasty rumors Thursday that caused the stock to drop. Friday morning I put in a Bid to buy at $28 but I see that there is also a Bid in to buy at $0.01. That is not an error. The bid is for One Cent on a stock that closed the previous day at $28.03. A market order to sell might have been transacted at that price if there were no other offers. There was also an Ask to sell of $37 and that would cost a buyer $9.00 more than the close.

Electronic trading is a wonderful thing and I really do prefer it to talking to a broker or their secretary. But there be monsters out there and caution is needed, especially in these volatile times.

When putting in buy and sell orders during the off hours, be sure to use Limit Orders. Though some brokerages may charge a little extra for a limit order it may save you a lot more than you might imagine. It is also prudent to put Limit Orders on lightly traded stocks during market hours as well. I got snagged the other day on TTPA for a nickel a share above the last quoted price. No big deal as I only bough 200 shares to round out my holdings. But now the stock is down a Ten Cents from what I paid and a Nickel from what I had expected to pay.

Disclosure: Author is long AKAM and TTPA.