When it comes to trading ETFs, it’s important that advisors and investors fully understand the tools at their disposal. Given the current macroeconomic environment for the market, trading education could prove itself to be more valuable than ever. Across the market, securities of all kinds are seeing their prices swing based on the latest headlines.
The Highs & Lows of Market Orders
Generally speaking, most advisors and investors are trading for ETFs using market orders. Understanding how a market order works is fairly simple. Basically, a market order entails requesting a broker either purchase or sell a chosen security at its current market price. From there, the broker looks to immediately buy or sell the security at the best price available at the time.
Given their focus on immediate execution, market orders can be a valuable trade option when time is of the essence. With market conditions oftentimes shifting rapidly, the urgency of market orders can help on both an offensive and defensive basis. However, volatile market conditions could leave market orders exposed to unplanned price fluctuations.
Luckily, market orders are not the only trading method available for advisors and investors. In fact, volatile price conditions could largely be negated through the use of limit orders.
How Limit Orders Navigate Price Volatility
Much like a market order, a limit order is used to buy or sell a chosen security. However, limit orders differentiate themselves by only being executed if a price reaches or surpasses a preset limit price.
Limit orders can offer significant benefits to advisors and investors alike. Their structure can help mitigate market volatility by maintaining firm price control over chosen securities. This can help advisors and investors navigate market uncertainty and make trades in line with their chosen risk profile.
However, limit orders are not without their drawbacks. Advisors and investors may need to be more patient and wait for a security’s price to get into the limit range in order for the trade to go through.
All in all, market orders and limit orders each offer unique upsides and downsides. As such, advisors and investors should carefully consider which trading order aligns more with their priorities at the time.
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