Memo to

Robin Williams

, who writes, "


(AMTD) - Get Report

says they only fill limit orders if it

the issue stays at the amount you have selected as a limit for a considerable time and doesn't drift back down. They say that it isn't a priority for them and that they take care of limit orders when everything else settles down, and that it should only be used on sales for slowly creeping stocks, not stocks like



. They told me if I really wanted it to sell at a specific price and lock it in and move it through the system, I should use a stop order. Then I saw a stop-limit selection and got all confused."

Let's start by defining the key terms. Limit orders, which this column addressed

last week, are orders to buy or sell at a


price. Stop orders, on the other hand, are orders to buy or sell at the


price. The difference between stop orders and market orders is that a stop order isn't actually placed until the stock hits a trigger price specified by the investor. A stop-limit order combines the triggering aspect of the stop order with the specificity of the limit order. For example, the stop order BUY 100 GM 85 STOP 84 LIMIT would place a limit order to buy 10,000 shares of

General Motors

(GM) - Get Report

at $84 a share as soon as the market price of GM hit $85.

In general, because they're really a form of market order, stop orders are more effective as safety valves or hedging tools than as precision trading instruments.


As I noted last week, the problem with limit orders is that they don't always get filled. Sometimes there are just too many market orders willing to pay more or accept less than you are. That's basic -- nothing you can do.

But you're suggesting that something else is going on. For the record, an Ameritrade spokesman denied that the company gives short shrift to its customers' limit orders. Just like market orders, limit orders are placed as soon as they come in, he said. If a limit order doesn't get filled, it's because there's not enough volume on the other side of the market.

The more likely source of the problem, suggests one trader, is the fragmented nature of the


market, where VerticalNet trades. Unlike the

New York Stock Exchange

, where each stock's market is made by a single specialist, Nasdaq stocks each have several competing market makers. Limit orders for Nasdaq stocks end up in one market among many, and the best bid and ask prices within each of these markets aren't necessarily reflected in the basic Level 1 stock quotes that most online brokers supply. Only the best bid and ask prices among


the markets show up there. So, if you're looking at Level 1 information, it could seem as though a stock has moved right through your limit without hitting your bid. But in reality, that bid isn't even a part of your market.

The problem, unfortunately, is endemic to the Nasdaq. "You can't place it in 10 markets, or you'd sell it 10 times," the trader says.

Message Center

Memo to

Cressida Connolly

, who wonders if it's illegal for insiders to short their own company's stock. Cressida, you might want to sit down before I answer your question because the answer is no.

Open season, then? Not really.

Securities and Exchange Commission

spokesman John Heine points out that although there's no "blanket prohibition" against insiders selling their own shares short, there are other important checks and balances to keep them honest. To begin with, there are laws against

insider trading, and active attempts to make these short positions pay off can quickly put an insider in very hot water. Company insiders have to register such sales with the SEC, putting red flags out to investors and the financial press. There's also what Heine refers to as "the optics problem" -- i.e., it doesn't look very good when a company's executive takes a position that is directly opposed to the notion of increasing shareholder value.

Memo to an anonymous reader, who wonders where to go to find the NYSE overbought/oversold index: Try our own Helen Meisler's

Daily Chartist. It runs every weekday, as the name implies, and includes an NYSE overbought/oversold oscillator. The best part -- Helene actually tells you what the chart means.

Memo to

Gil Gilbertson

, who wonders why, in last week's item on shorting against the box, I noted that tax law restrictions on that strategy exist, without going into the details. Touche, Gil, and point taken. I generally defer tax issues to our excellent tax reporter,

Tracy Byrnes

. Look for an item on shorting against the box in her weekly

Tax Forum.

But in the meantime, here's what I know. Shorting against the box hasn't been outlawed, as many people seem to think. You can still do it if you 1) close out all your previous year's short positions by Jan. 20 of the next year and 2) then hold the original long position -- the one you canceled out with the offsetting short -- for at least 60 days. You can, however, write a covered call during that period if you still want something to offset your position.

Memo: Have a dumb question relating to finance? Great. Have a


dumb question? Even better. Send it to, and I'll do my best to answer. Include your full name, and please, no questions seeking personal financial advice or regarding personal brokerage disputes. And this reminder: Because of the volume of mail, personal replies can't be guaranteed.