Strategy on how to get best BUY price

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10th Jun '16 by Noodle Hat

7 comments 9539 reads

As per title, to date I have been purchasing shares "at market rate" through my broker, TD Direct. I dont have level 2 or any of that, Stockopedia is my only subscription, only a couple years into investing and a smallish portfolio.

Is this best practice, or am i likley to be done over and been getting a poor buy price? Is it better to have a limit order a little below the current price, or would this likley just not get filled? As I understand level 2 shows you the whole market and that some people may actually be willing to sell/ buy higher/lower than the price I get "at market" through TD direct?

Or am I just over thinking this....?

many thanks.

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About the Author

Noodle Hat

Premium Member

7 comments

andrewdb

10th Jun '16

I generally leave limit orders.

All things being equal(*), in the short term, the FTAS/FTSE tends to wander randomly. Company SPs tend to wander randomly, so leaving a bid a bit below the current price may well get triggered

(*) except that they are not. if you pick a high SR stock, a good part of a high QVM score is the M-Momentum so that approach only really works if the stock has a low momentum score / negative momentum.
Also SPs tend to react to news and you might want to read the news before you buy - or let the automated rule loose.

Rusty2

10th Jun '16

I would not worry too much, if you want to buy them buy them, you can leave limited orders but if the price goes up then it will not be filled and you have missed out. Limited orders are good as you can pick up some shares cheap, often in early morning thin trading if theres a dip after a large sale, when you are not looking but its a hit and miss strategy. My view if you want it then buy it, if you are not that bothered but you'll buy if the price falls to x then set a buy limit. Timing the market is difficult. I don't know TD direct, but you can check the prices to see if you are getting a good deal.

Level 2 is advanced and usually costs money, I would leave it for now.

gus 1065

10th Jun '16

Hi Noodle.

To some extent it depends on the share and the circumstances in which you are buying it.

For a very liquid share like Lloyds Banking (LON:LLOY) or Imperial Brands (LON:IMB) the spread is quoted as being 0.01% so unless you are trading in large size buying on the offer is substantially the same as the bid so there is little to be gained from not trading directly at market. Conversely, some stocks can be very illiquid. Should you want to buy Asian Growth Properties (LON:AGP) the quoted spread at close today was 35/43p and Stocko shows the standard market spread as 20.5% so obviously there is a huge difference to contend with. A possible strategy with this stock would be to place a limit order at just above mid, say 39.1p and see if you get a nibble via a broker who has a client looking to sell but doesn't want to cross the full 20% spread. A decent broker/MM will usually have a good idea of where they can find some of the more illiquid stocks and might be happy with a trade for half of the spread rather than no trade at all.

In terms of the circumstances of the trade, if the share you want to trade is quite volatile on a given day, using a limit order can be quite a good way of tapping into an intra day downswing to get a good price (assuming of course that you're looking to buy). Likewise, if your interest is more of a fishing exercise than strong conviction (I'd like to buy but only at a price of Xp or below) limit orders can be useful too. For example, I was looking to buy a top up of some Pantheon Resources (LON:PANR) today. The market range in the morning had been something like 177p to 182p. At the time I was looking it was 181p offered. I placed an order at 179.5p and was filled within the hour. If I hadn't been filled, I wouldn't have been too bothered. Conversely, if you are looking to buy/sell a stock ahead of a potential material market moving event (e.g. a results announcement) having the certainty of a position albeit at a potentially higher price might be your preferred route.

As with most things in investing, there's no definitive right or wrong answer. There are various games that people play with varying degrees of success. As ever, do your own assessment of the upside and downside, pick your strategy accordingly and live with the consequences.

Best,

Gus.

cig

10th Jun '16

If your broker allows real limit orders (that get posted on an exchange, sadly not the case for the typical UK retail broker), a simple strategy is to put a day limit order at the bid (or ask for sells). If you don't get filled, repeat the next day (at the new bid). Your chance of getting filled within a few days is very high.

Yes the price will move away sometimes, but on average you also get paid the spread (for you are acting as a market maker), so you have a good chance to come ahead net compared to market orders for illiquid stocks.

Mike888

10th Jun '16

Hi Noodle, don't worry about "market rate", even if you could manage to trim it you'll at best save yourself negligible percentage points, which over a couple of days will probably be meaningless.

Nick Ray

10th Jun '16

My experience with limit buys is that they have a bad habit of triggering when a stock has negative momentum and not triggering when a stock has positive momentum. Although you might hope that a close buy limit will simply get you in at a good price due to a natural amount of intraday volatility, I have to say that it does seem to have a stronger preference for stocks which are falling than you might expect.

In fact I have started using a mental "buy stop" and only buying when a stock moves up from its current price by a small amount.

Noodle Hat

11th Jun '16

thanks all, seems like ill just carry on as have been with market order then. as mentioned it should come out in the wash over the long term anyway given I'm generally planning to hold any stock for at least a year, preferably much longer.

that had also been my worry nick, obviously just buying market thou doesn't avoid buying into a falling share thou but thats a whole, different conversation!

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Strategy on how to get best BUY price

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Noodle Hat

7 comments

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