Trading stocks at the Market Open

Sometimes you discover a stock overnight that you would really like to own. Perhaps there was good news that you expect will cause it to go higher. Many people will place a market order to buy the stock the next day. If this order is placed, it will go into a queue of orders to buy that stock at 9:30 AM EST the next morning. All of the overnight buy at market orders accumulate so that the next day at the open there is often huge demand to buy the stock. Since the pent up overnight demand is so high, people that want to sell the stock can demand much higher prices. Thus the stock will open at a very high price and climb higher until all of the overnight demand is exhausted. When you place an order to buy at market you have no control over what price you will pay as the price climbs higher. Often times the price will then decline as the buying demand is exhausted, so you will not have gotten the stock at the best price.

A better strategy is to wait until 10:30 AM to place an order to buy the stock. Placing a market order at 10:30 AM is safer than at the open. By 10:30 the demand will have stabilized. It is also safer to place a market order with a stock that trades in high volumes each day and has a small bid / ask spread. It is usually preferable to place a limit order rather than a market order so that you know what price you will pay, but market orders are fine when the bid ask spread is small and the trading volumes are high in a stock (1 million shares or more per day).