Exiting with Market Orders

Some self-styled “investors” have strong opinions about the inadvisability of exiting positions using market orders. They claim that the market makers will give you the worst possible price and that you should always exit with a limit order. As someone who does a bit of trading from time to time, I’d disagree. Instead, I’d say that the price you get will depend on factors like ‘liquidity’ and ‘spread’. So let me give some examples.

TD Ameritrade’s trading platform (TOS) can be set up as below, where hitting the ‘Flatten’ button sends a market order for the whole of the position being charted. Sometimes, you are gotten out very, very close to the ‘Ask’. Sometimes, on the 'Bid. Sometimes, the spread is split. However, I will say this about TOS --as well as Schwab’s platform-- that if you’re trying to get in or out on an illiquid stock or ETF with a wide spread, you’re better off --more times than not-- executing with a market order rather trying to be penny-wise with limit orders. In fact, I’ve often enough gotten a better price from the algorithm than I was trying to get on my own. Of the 50 exits I did just now, --cleaned up 7 losers and took profits on the other 43-- nearly every one was done with the ‘Flatten’ button, and the fills were good.

For sure, your mileage will vary depending on which broker you’re using and what you’re trying to buy or sell. But market orders are a tool that shouldn’t be dismissed out of hand. (IMHO, 'natch.)