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setting a realistic share price limit
There are certain factors that all traders (novice or seasoned) should consider
before setting a price limit on orders to "pay no more than" or "sell no less
than".
Daily price levels - what range have the shares been trading in?
Charts - are the shares trending up or down?
Liquidity - how often are the shares traded?
Time of day - is the market open or closed?
Daily price levels
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Last: |
the most recent on market trade of the day |
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High: |
the highest on market trade of the day |
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Low: |
the lowest on market trade of the day |
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Close: |
the final on market trade of the day |
The "last traded", "high", "low" and "close" prices are useful indicators because
they can portray a sense of market sentiment for a share over a trading
day.
Look at the spread (difference) between these prices to get an idea of the prices
that other traders have been prepared to pay/accept for their shares. Does your
price limit sit in a similar region to theirs?
In the example below, what are the chances of an order to sell at $5.00 being met if the highest traded
price at 4:00pm was $4.50?
Can you reasonably expect the company's share price to increase by $0.50 (11%) in
the last hour of trading, or are you happy to wait for the price to (not necessarily)
reach this level?
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Last |
VWAP |
Buy |
Sell |
High |
Low |
First |
Volume |
Value |
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446 |
^6 (1.3%) |
445 |
445 |
446 |
450 |
439 |
440 |
200,000 |
$890,000 |
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19/05 - 16:00 |
VWAP: Volume Weighted Average Price represents the average price
a security trades at over the market date by total volume at each price.
Charts
The charts on Direct Broking's website can be used to illustrate the performance
of a share over 1, 3, 6, 12, 24 or 36 months. Charts are the preferred
method of evaluation for some traders as they give a visual representation of share performance,
rather than just a list of numbers.
For example, if you were planning to sell shares at a limit of $2.00 and the chart you are reviewing
shows a sharp downward trend - from $5.00 in January down to less than $1.00 in
May - then you may need to investigate the reason(s) for this downward trend and
reconsider your original price limit.
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Super Charts
Direct Broking also offers a "Super Charts" function that extends the standard Quick
Quote charting functions to help you get more out of your chart-based research.
Experienced traders will use "Super Charts" to get a view of the progress and momentum
of a share, to compare volatility, to view the support and resistance levels of
a share and also to compare closing prices against price ranges.
Read the Super Charts online tutorial. |
Liquidity
Some shares on the market are not as frequently traded as others - they are "illiquid".
Setting a limit price on an order for illiquid shares requires careful consideration
and, possibly, a lot of patience!
You may notice that the "buy" and "sell" prices for an illiquid share may be widely
spread and that the "last traded" price may not have occured in the previous trading
day(s).
In the example below, what are the chances of an order to buy at $5.20 being filled? With an illiquid
share that hasn't traded for quite a few days, you would need to investigate further
- check the depth and/or check a chart for the last 1-3 months of trading.
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Last |
VWAP |
Buy |
Sell |
High |
Low |
First |
Volume |
Value |
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540 |
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535 |
560 |
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26/05 - 11:10 |
VWAP: Volume Weighted Average Price represents the average price
a security trades at over the market date by total volume at each price.
You also need to be aware that your order may not trade within the 4 week NZ market
expiration period and you may need to re-place it when it expires, possibly at a
revised limit price.
If you are trading illiquid shares, it is important that you monitor the performance
of the share to ensure that your price limit is kept within a reasonable range of
the daily market prices.
Time of day - "at market" orders
When submitting an "at market" order, you are requesting that the buy/sell order be
placed at the best available offer/bid price at the time the order is entered into
the market. Please note, an "at market" order does not necessarily mean that the order
will be traded in full.
For example, if you wish to purchase 10,000 shares "at market" and the top seller at $2.00 only
has 7,000 shares available, you will purchase 7,000 shares at $2.00 and the remainder
of your order will be placed at the top of the buy queue - 3,000 to buy at $2.00.
The remainder of your order (3,000 shares) will not be purchased from the next seller
in the sell queue unless you amend your order. Please note: If
you need to amend your "at market" order more than once to trade the remaining quantity, you
will NOT be charged brokerage each time you amend.
Traders need to remember than an order to buy or sell "at market" is best placed
during OPEN market hours, as opposed to placing an "at market" order when the market
is not actually trading ("pre-open" or "pre-close" hours).
Please avoid placing an "at market" order when the market is not open.
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NZX pre-open |
9:00 - 10:00am |
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NZX OPEN |
10:00am - 4:45pm |
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NZX pre-close |
4:45pm - 5:00pm |
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NZX close |
5:00pm |
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ASX pre-open |
9:00am - 12:00pm (NZT) |
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ASX OPEN |
12:00 - 6:00pm (NZT) |
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ASX pre-close |
6:00 - 6:15pm (NZT) |
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ASX close |
6:15pm (NZT) |
A final note: US/UK Custodial Orders
US/UK Custodial Orders are "good for day" orders. That means that if they have not
traded at the end of the trading day in the relevant market, they will be removed from the market and listed
as "Expired" in your orders screen. If the order has partially traded, the remaining
quantity will be removed from the market and you will only pay brokerage on the
quantity that has traded.
NOTE: NZ orders remain in the market for up to 4 weeks and AU orders for up to 3
weeks.
Custodial traders may not be able to re-place their expired orders every day, so
should try to set their price limit at a realistic and reasonable level to give
them a higher chance of their order being partially or completely filled before
the end of the trading day.
Before you click "Submit"...
Carefullly consider the price limit you have placed -
- Is it in range?
- Is it reasonable?
- Is it realistic?
- Is it achievable?
- Are you prepared to monitor the market and adjust the price if necessary?
If you need further clarification or assistance, please do not hesistate to contact
our team of Dealers between 8:30am and 6:00pm.
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