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Stock Buy / Sell Order Types Defined

March 18, 2009 | Education | Stocks | No Comments
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If you are new to buying or selling stocks then you should be familiar with the various buy and selling options available to you.  Below is an explanation of the different buy/sell options:

Market Order – order to buy or sell a stock immediately at the best available current price; no price can be specified in this order. This order guarantees execution, but does not guarantee execution price.

Be wary of using market orders on stocks with a low average daily volume: in such market conditions the ask price can be a lot higher than the current market price (resulting in a large spread). In other words, you may end up paying a whole lot more than you originally anticipated. It is much safer to use a market order on high-volume stocks versus low-volume stocks. Buy market orders are executed generally at the ASK price.

Limit Order  – order to buy or sell a stock at a particular price. The purchase or sale will not happen unless you get your price. Limit orders give you control over your entry or exit point by fixing the price, which can be helpful.

Stop Order – order to buy or sell a security when its price surpasses a particular point, limiting the investor’s loss or locking in his or her profit. Once the market price surpasses the predefined entry/exit point, the stop order becomes a market order, and is then handled as defined under the definition of a market order.

This type of order is also referred to as a “stop-loss order”. Stops are not a definite guarantee of getting the desired entry/exit points. For instance, if a stock gaps down then the trader’s stop order will be triggered (or filled) at a price significantly lower than expected.

Stop Limit – order used to open or close a position by buying if the market rises or selling if the market falls, but that turns into a limit order when the stop price is triggered. Stop limit orders have a stop price and a limit price. When the stop price is triggered, the limit order is activated.

The stop price for buy orders is placed above the current market price. The stop price for sell orders is placed below the current market price. The stop price does not need to be the same as the limit price. Just as with a limit order, the stop limit order will be filled at the limit price or better, but may not be filled at all.

Trailing Stop  – order that continually adjusts the stop price based on changes in the market price. A trailing stop to sell raises the stop price as the market price increases, but does not lower the stop price when the market price decreases.

A trailing stop to buy lowers the stop price as the market price decreases, but does not increase the stop price as the market price increases. In both cases, the stop “trails” the market price. When the stop price is reached, the order becomes a market order. The same risk of market orders applies to trailing stops.

Trailing Stop Limit – order type that works the same way as the trailing stop, only instead of a market order being sent to the exchange, a limit order will be sent to the exchange. With this order, you will be able to stipulate the worst price you are willing to accept for a fill. There is no guarantee that you will be filled, though, as the price may gap through your limit price.

Market on Close – order that buys or sells at the market price at the close of trading. You must submit the order by 2:40 pm CT. The same risk of market orders applies to MOC orders.

Limit on Close – order that buys or sells at a limit price at the close of trading. You must submit the order by 2:40 pm CT. The order can be filled at the limit price or better, but is not guaranteed a fill.

Good Till Canceled – order instructs your broker to keep the order active until you cancel it. Obviously, you use this order with other order types to specify a time frame for the order.  Some brokers have limits on how long they will hold a GTC order.

Day Order – any order that is not a good till canceled order. If your broker does not fill your order that day, you will have to re-enter it the next day.

All or None – order states you want the entire order filled or none of the order filled. You would use this type of order for thinly traded stocks.

 

 

 

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