“At Market” has a few risks, one being as you suspect, the market depth being against you or turning against as you place the order.
Take the example below of the recent market darling TGN. Say you are holding 100,000 shares and you think it is time to sell. You have a look and you see that there are 100,000 or so on the buy side at 48 and 47.5 and the last trade was 47.5.
You place an order “At Market”. As you are placing that order, trades go through immediately before you click the final sell button and the market depth looks like the pic below at the time your order hits the market.
Your trade will then go through the buy list resulting in your 100,000 being sold at an average of 35.38 and you have received about 25% less than you expected. Of course, your broker’s algorithm may possibly have stopped your trade as it would be deemed to be moving the market.
Had you placed a limit order, the trading may have been more orderly and slowly recovered to your limit price. Or it may have gone lower but in an orderly fashion.
Be the first to comment