Investing 102

[GregWeld]

A few posts ago -- we discussed Limit orders - Stops etc.

I normally use a "limit order" if I'm buying on a down day -- like today -- in a position that I don't really care if I get or not.

I've bought Banco Santander (STD) on and off for a couple years. It pays a nice 10% dividend -- but remember that it's paying that high dividend rate not for any other reason that the STOCK PRICE SUCKS.... remember this inverse correlation! The dividend is a set amount - so as the price declines the percentage of dividend goes up and conversely as the stock price goes up the percentage goes down.

I wanted to mention this "limit order" to show why -- for Investing 102 -- it's really not very important. The fact that I use it from time to time is due to the larger amount of shares I deal with.

So -- I put in a 10,000 share purchase with a limit at $8.54.... the ask was $8.57 so had I put in a "market order" I would have gotten the shares at $8.57 or whatever was available at whatever price. Some may have been bought at $8.57 and some might have been bought at higher or lower prices.

So here's the key to this for Investing 102..... the .03 DIFFERENCE between the "bid" (me) and the ASK (seller) on 10,000 shares is a whopping $300 on a $85,000 purchase. Whoo hook.... that ought to make or break a profit on this investment shouldn't it?

But -- if I was a trader? That $300 saved - in multiple trades per day -- over the course of a month or a year - would be huge!

I did it because I don't want to pay "up" on a down market day. If I used it in a rising market -- I might not get the shares -- because I was being "cheap" -- and then they might have risen .50 a share after lunch! I'd have missed out on that move. So it is - like all things - subjective and it all "depends".