Journal of Finance Vol. 51 No. 5 1996
Limit Order Trading
open access
Abstract
We analyze the rationale for limit order trading. Use of limit orders involves two risks: 1) an adverse information event can trigger an undesirable execution, and 2) favorable news can result in a desirable execution not being obtained. On the other hand, a paucity of limit orders can result in accentuated short-term price fluctuations that compensate a limit order trader. Our empirical tests suggest that trading via limit orders dominates trading via market orders for market participants with relatively well balanced portfolios, and that placing a network of buy and sell limit orders as a pure trading strategy is profitable.
- DOI
- 10.2307/2329540
- Volume
- 51
- Issue
- 5
- Pages
- 1835
- Sources
- openalex crossref