Thou shalt not use market orders. Example #12,538

Repeat after me, thou shalt not use market orders.  

Today the equity markets are a bit queasy and US Treasury bonds are rising.  As I scanned my list of holdings to see how the markets are responding I notice something unusual.  VGIT, the Vanguard 5-10 year Treasury bond ETF shot up more than 40% right at the open and then fell back down to nearly the previous day's close.

Instant massive loss on a 'safe' investment, most likely from putting in a market order right before the opening bell.

VGIT is a less liquid ETF but this is ridiculous.  Less than 900 shares traded on this massive spike upward; it doesn't take a lot of volume to move a thinly traded stock or ETF and yes, even ETF's can go illiquid..

A very bad day for someone. 

Please don't use market orders when placing orders!    Look at the current bid/ask and the shares available at those prices.   Limit orders are a much safer way to go even if you really need to move a position in or out.  If you don't know the difference between a market and limit order please find out before you do any more transactions..

Disclosure: Long VGIT in some client accounts


Wikipedia entry on order types

edit: Upon re-reading I failed to accentuate when you don't use market orders.
Please don't use market orders when placing orders on thinly traded stocks or at the open
If you are buying 100 shares of Apple it's not going to make a difference. If selling something near the opening bell, wait a few seconds and see what the market looks like. 


edit 2: The price action on Facebook's opening day is another good example of incorrectly using market orders. The blog entry here: http://www.ritholtz.com/blog/2012/05/this-is-why-you-use-a-limit-order/ shows the brutal reality of those who all bought Facebook at the open immediately losing money.

This post deserves a rewrite as I flubbed up my point but regulators freak out when you 'change something' without proper documentation of the original.  I'll let my errors stand as a reminder to myself and I'm not going to expend the effort of keeping a copy of the original stored someplace for eternity.