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What Are the Different Types of Orders in the Stock Market?

With the ever-growing digital age, investors of all skill levels are turning to online tools to buy and sell stocks. While this might seem like a way to cut down on paying large commissions, it can be daunting if you do not fully understand market orders and how they impact your trading.

Depending upon your investing style, certain types of orders can be more beneficial than others. As you expand your knowledge as an investor, understand how the different types of orders can help you trade stock more effectively.

Understanding Market Orders

When you first learned about buying and selling stock, it likely seemed pretty straightforward. However, trading is complicated. There are many ways that you can trade and different types of orders that serve specific purposes.

Do All Brokerages Use the Same Trading Mechanisms?

In the securities industry, there are various markets that facilitate trades. Each operates under different trading mechanisms. Because of this and other internal policies, some brokerage firms may not have the availability to do stop, stop-limit, and trailing stop orders.

The best way to determine which market orders your brokerage firms can execute is to reach out to your firm directly.

Types of Stock Market Orders

Investors who choose to buy and sell stock on their own behalf might be surprised to find that more is required than to hit “buy” or “sell.” In fact, some orders are not executed immediately, while others have conditions attached. Understanding the order you place can help play a part in the price you pay and the return on your investment.

What Is a Market Order?

A market order is the simplest order to understand. There are “buy orders” and “sell orders,” both with the intention to buy/sell stock immediately. Using a market order gives you whatever price is currently available in the marketplace.

It is important to note that the last traded price does not mean that is the price your market order will be executed. With the quickly moving and sometimes volatile markets, the price you buy (or sell) can sometimes differ from the last price.

What Is a Limit Order?

A limit order allows investors to trade securities for a set price in the future. With this type of order, if you want to trade at a predetermined level, the order will not be executed until the price reaches this level. A limit order sets the minimum or maximum price that you are willing to trade.

For example, if you wish to buy a stock for $15 you would enter a limit order for this price. If executed, you would not pay anything over $15 for the stock, but you could pay less than $15 per share.

What Is a Stop-Loss Order?

When working with a broker, you have the option to place a stop-loss order. This type of order was created to limit an investors loss on their investment. For example, if you determined the most you are comfortable losing is 10% or less, you would execute a stop-loss order for 10% below the price you purchased the stock. If the price falls below this threshold, it will be sold to minimize your loss.

Buy Stop Order

A buy stop order is a type of stop order that instructs your broker to purchase a security when it hits a predetermined price. Once the stock price hits that level, your buy stop order becomes a market order or a limit order, which is then filled at the next available price.

Sell Stop Order

Alternatively, if you are wanting to sell your stock, it is a different type of order. A sell stop order has a specified price that triggers the allowance of the order to be turned into a market order to be sold.

Stop-Limit Order

A stop-limit order is a two-step conditional trade that combines a limit order to mitigate risk and the features of a stop order. A stop-limit order is executed when the specified price, or better, is reached. At that point, it then becomes a limit order to sell at the limit price or better. However, if the stock price is above the set limit, the order will not be executed.

For example. Perhaps you are interested in purchasing a specified stock that is currently trading at $25. When it begins to show upward movement, you can create a stop-limit order. You can set the stop price at $30 and the limit price at $40. When the price moves above your stop price, it will turn into a limit order. If it can be filled under the $40, it will be executed. However, if the price goes beyond the limit, it will not be filled.

Trailing Stop Loss $

There are two kinds of trailing stop loss orders. The first is trailing stop loss price, the other is a trailing stop loss percentage.

Instead of a stop price being a specified price, with a trailing stop loss price, it is a specified dollar amount above or below the current market price of the stock. As the price of the stock moves favorably, the trailing stop loss price adjusts. However, if the price moves in a negative direction, the trailing stop price does not move. If the stocks price hits the trailing stop price, the order is triggered.

Trailing Stop Loss %

A trailing stop loss percentage is similar to a trailing stop loss price. The main difference is the stop price is defined as a percentage instead of a dollar amount.

To understand trailing stop loss percentage, let’s look at an example. You invested in Company A stock which has been in an upward trend that eventually reaches $100 per share. If you set a 5% trailing stop loss percentage. It will trigger a sell order if the shares fall at or below $95. However, if the share price continues to increase, your 5% trailing amount would continue to be adjusted. If the shares reached $120, the new stop price that would trigger a sell order would be $114.

Trailing Stop Limit $

A trailing stop limit price order is another two-part order. The first part is the trailing stop loss price. Once the price hits below the set price, a limit order is triggered instead of a market order. This type of order offers investors more control when the price of securities falls fast.

Trailing Stop Limit %

As with all the above-mentioned trailing stop orders, a trailing stop limit percentage continuously readjusts when the market rises. This stop order is based on a percentage. If the stock falls below that threshold, a limit order is triggered.

All-Or-None (AON)

As the name of this order implies, if you create an all-or-none order you will either get the entire quantity of stock you requested, or none. For example, if you put an order to buy 1,000 shares of Company B, but only 500 shares are available, your order will not be fulfilled until all the shares are available. If you do not place an AON order, you would only receive the partially filled order of 500 shares.

Immediate-Or-Cancel (IOC)

Immediate-or-Cancel orders mandate the timing instructions that the order must be executed. If it is not fulfilled in a short time span (usually seconds or less), it is cancelled. If you do not put a time expiration on your order, they will automatically be day orders.

Fill-Or-Kill (FOK)

A Fill-or-Kill order combines the All-or-None along with the Immediate-or-Cancel order. This means that you would determine the quantity of shares you want traded and an immediate time frame. If both conditions are not met, the order is cancelled.

Good-Til-Canceled (GTC)

A GTC order is an order that remains open until it is fully completed or cancelled by you or your brokerage firm. Many brokerage firms have time limits for the length that an investor can leave the Good-Til-Cancelled order open.

Day Order

When you place an order, if you do not specify the time frame of expiration, it will automatically be set as a day order. What this means is if your order is not executed by the end of the trading day, it expires. You will have to re-enter the order the next day if you so choose.

Take Profit

This type of limit order triggers a sell order when the price of the security reaches a certain amount of profit. It is a standing order that many traders use to maximize their profits. If the price never reaches the limit, the order is not triggered.

On The Open

After the trading day, many investors are still doing research determining where to place their capital. An On the Open order is a directive that investors make for their brokerage firm to buy or sell a specified security at the opening of the next trading day. If the order is not able to be executed at the opening of the market, it is cancelled.

Become Familiar With Trading Order Types

As a long-term investor, you will be able to experience these various order types and create tactics that can improve your wealth. Decide short-term and long-term strategies that can help you reduce risk and reach your goals.  

Understanding all the orders can be confusing at first, but that is why you have options on where to turn. Your financial advisor can help you understand the correct order for your investing needs and help steer you away from the wrong order type.