• A rule of thumb

      If the stock is actively traded (meaning heavy volume), place a limit order; if the stock is not actively traded, place a market order.

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An investor perusing the average newspaper will usually see only one price for a stock--the previous trading day's closing price. But investors who have access to quote machines or online trading services can see two intraday prices as well. The lower price is the bid and the higher price is the ask.

There is a way around lining market makers' pockets. Investors can place a 'limit order,' which means the exact price at which they want to buy (or sell) the stock. For example, you can tell your broker that you want to place a buy limit order for Intel at $23.69. After all, if the market makers are selling Intel at $23.69, somebody has to be buying at $23.69 too. This is a prudent and cost-saving move for widely traded stocks, but if the stock is thinly traded, as so many small caps are, there is no guarantee that your limit order will go through.

A market order to buy or sell is guaranteed to go through, but you don't know at what price. The market maker could sit on the order for minutes before he decides to make the transaction, thus costing (or making) you money. A limit order can only be placed at the specified price. In the Intel example it was $23.69. If the market makers do not execute the transaction in a timely fashion, and the bid and the ask change, your limit order will not go through. Thus, both market orders and limit orders have their risks.