AMO - AFTER MARKET ORDER : what, why, how, etc.

A lot of online trading accounts allow you the facility to place an AMO order. Here AMO order means After Market order. This facility offered by online brokers can be very useful.

How does AMO or After market Order work?
AMO - After Market OrderWhen you login on your online trading account, usually on the bottom left corner you will see a radio button labelled "AMO". Checking this button while placing your order will result in an After Market Order. AMO can be placed only after market hours (i.e. when the markets are closed). When you place an AMO, the order is 'noted down' by the broker and is 'queued' to be sent to the stock exchange as soon as the markets open on the next working day.

Can you cancel an AMO?
Yes. But some brokers, like SBICAP Securities only allow you to cancel and not modify the order. That is not a problem though. To modify, you can always cancal and replace your order.

When should you use "AMO"?
AMO is an excellent facility for investors, when they want to book profits or exit a position as early as possible, but due to some other commitments are unable to login on the next working day (for example if you are going for a vaction on a week, etc.)

Caution: Avoid Using AMO for Intraday
I strongly recommend not using the AMO facility for Intraday trading. I say this from personal experience. Take the following example: Suppose you expect price of a particular stock to go up when the market opens. In order to 'hurry up' and 'avoid wasting time' you maybe tempted to 'guess the upward movement' and already place an AMO before the market opens, anticipating an upward movement. But this is a bad strategy. because even if your guess about upward movement is right, your guess about the magnitute of the movement is likely to be wrong. I have tried even variations of this, for example "spreading" the order over different values in order to statistically get better results, etc. But they are not worth mentioning here because they have not worked. Yes, sometimes i did make a good profit. But when i did not, i lost big enough to make an 'overall loss'. So avoid using AMO for Intraday.

Feb 10, 2009

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