Learn the Stock Market Lesson – Types of Orders
There are 3 main types of orders: limit, market, stop
The purpose of different types of orders is so that you can be more specific about how you would like your trades to be executed.
1) Market Order – Your buy or sell order is filled immediately. The execution is guaranteed but the price is not since slippage can occur. However, some people might not want a stock at the current trading price because they want to wait for the stock price to move in a certain direction before they move in, which is why they place a limit or stop order.
2) Limit Order – You control the price by setting a maximum or minimum price that you are willing to buy or sell a stock. The advantage of a limit order is that it guarantees the trade at a specific price but you risk not getting your order executed if your limit price is not reached.
Example : If a stock is trading at $20 but you only want to pay $10 maximum, you can set a limit price for $10 so that if the stock drops to $10, your order will be executed. Likewise, if you own a stock that is trading at $15, but you want a higher profit and sell it at $20, you can place a limit order to sell it at $20. Of course, if the stock does not rally up to $20, your order to sell does not get executed.
- 4 types of Limit Orders:
- Limit Buy Order – Will only be executed if the price is at the limit price or less.
- Limit Sell Order – Will only be executed if the price is at the limit price or higher.
- Limit Sell Short Order – Will only be executed if the price is at the limit price or higher.
- Limit Cover Short Order – Will only be executed if the price is at the limit price or less.
3) Stop Order – You set stop orders if you want your trade to only be executed when the stock reaches a particular price. When the stock reaches the stop price, it becomes a market order and the execution is filled. Many people use this order to set a stop-loss, which limits your losses.
Example : Stop-loss - If you own a stock that is currently trading at $10, you can set a stop order to sell at $5, which would be filled if your stock does happen to drop to $5. Stop-losses are especially advantageous to people who cannot watch their stock for a period of time and want to limit their losses.
- 4 types of Stop Orders:
- Stop Buy Order – Will be only executed if the price is at the stop price or higher.
- Stop Sell Order – Will be only executed if the price is at the stop price or less.
- Stop Sell Short Order – Will be only executed if the price is at the stop price or less.
- Stop Cover Short Order – Will be only executed if the price is at the stop price or higher.
Tags: limit buy order, limit cover short order, limit order, limit sell order, limit sell short order, market order, stop buy order, stop cover short order, stop order, stop sell order, stop sell short order