Daily Recap: Understanding Order Types in Thinkorswim

Today, I immersed myself in the technicalities of Thinkorswim, specifically exploring the differences between buying at market, ask, and bid prices using the simulator.

I initiated a market buy order on BSFC, a high-volume stock, expecting a smooth transaction. To my surprise, it took over 10 seconds to fill, and the fill price was significantly higher than anticipated. I pressed the buy market button at $3.25, but it slipped all the way up to $3.56—a considerable and unexpected difference. This delay and slippage were unusual for me, prompting a pause in my trading to investigate this anomaly.

While it might have been an issue with Thinkorswim’s servers, this experience underscored a critical lesson about slippage and order types. Buying at the market price can lead to significant slippage, where the actual fill price deviates from the expected price, especially in fast-moving markets.

To mitigate this, I realized that using limit orders—buying at the ask or bid price—could be safer. This ensures that the order is executed at the specified price or better. However, during a price surge, setting a buy price around the ask price might be necessary to ensure the order gets filled.

Additionally, setting a buy order during a pullback could help capture a rise without risking large slippage. Missing out on a wave is preferable to enduring significant slippage from a market order.

I also noted that the same issue could arise when selling at market price, causing the price to slip lower than anticipated. Setting a stop limit in advance would be ideal, but sometimes a market sell is necessary just to exit a position.

Today’s experience reinforced the importance of understanding and strategically using different order types to manage risks effectively.