Mad Money

Individual investors should never do this

Avoid this common mistake

If you're relatively new to the market, there's something Jim Cramer doesn't want you to do. He doesn't even want you to think about it.

Under no circumstances should individual investors use market orders.

Unfortunately, all too many people who are new to the stock market don't even know what that means.

"When you call your broker and tell him to buy or sell a stock, but you don't name a price, that's a market order," explained the "Mad Money" host. "You may not realize it, but what you're doing is giving that broker permission to fill your order at any price."

When explained that way, Cramer said, of course you wouldn't place a market order.

"Would you go at supermarket and say I'll buy a head of lettuce at any price? Would you do that with a sweater at the mall? No, of course not!" said Cramer.

However, it happens all too often when people go shopping for stocks simply because new investors don't know any better.

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Instead Cramer said to use limit orders.

"All you have to do is tell your broker the highest price you're willing to pay if you're buying, and the lowest price you're willing to take if you're selling. That way you will always either get your price, or the trade simply won't happen," Cramer said.

Cramer wants every new investor to get in the habit.

"It's the easiest thing in the world to do and doesn't cost a penny more, but over time it could save you a small fortune, especially on days when the action goes haywire," he said.

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And while he has your attention, if you're an individual investor, Cramer also recommends against buying stocks on margin—meaning do not borrow money from your broker to purchase stocks.

"Buying on margin might seem like a great method for making a small amount of money go a long way, but in reality it's just a great way to wipe yourself out," Cramer cautioned. "The practice is just plain dangerous, especially if you're new and don't know what you're doing."

Call Cramer: 1-800-743-CNBC

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