Trading Securities - Types Of Orders



There are different types of orders that investors can enter to buy or sell securities. There are other orders that can guarantee that the investors’ orders will be executed immediately.

Other kinds of orders may require a specific cost or condition under which the investors need their order to be performed.They are all considered “day” orders unless specified otherwise. All the Day orders will be disregarded at the end of the trading day if they are not executed. A shareholder may also specify that his order stays active until discontinued. This kind of order is recognized as “Good Til Cancel” or “GTC.”

Market Order

This order will assure that the investor’s order is performed as soon as the order is offered to the market. When a market order is offered for execution, the market for the security may be very different from the market that was presented when the order was entered. Therefore, the investor does not know the precise amount that their order will be executed at.

Buy Limit Orders

This order refers to the maximum amount that the investor will pay for the security.The order possibly will never be executed at an amount higher than the investor’s limit amount. Although a Buy Limit Order guarantees that the investor will not pay more than a specific amount, it does not guarantee them an execution. If the stock carries on to trade higher away from the investors limit amount, the trader will not buy the stock and can miss a possibility to obtain a profit.

Sell Limit Orders

This order refer to the minimum amount that the investor will accept for the security. The order may never be performed with an amount lesser than the investor’s limit amount. Even though a sell limit order pledges that the investor will not get less than a specific amount, it does not assure them an execution. If the stock continues to trade lesser from the investor’s limit amount, the investor will not sell the stock and can miss a chance to receive a profit or may receive a loss as an outcome.

Focus Point

It is important to remember  that even though an investor set stock trading at their limit amount, it does not indicate that their order was implemented because there could have been stock ahead of them at that limit price.

Stop Orders / Stop Loss Orders

This order can be used by investors to limit or secure against a loss or to protect profits. A stop order will be positioned away from the market in case the stock starts to move in contradiction to the investor. A stop order has to be elected and is not a “live” order. Once the stop order is elected, it becomes a live order when the stock trades at or through the stop price. The stop price is also recognized as the trigger price. As soon as the stock has traded at or through the stop price, the order becomes a market order to either buy or sell the stock depending on the kind of order that was positioned.

Buy Stop Orders

This order is positioned above the market and is used to guard against a loss or to secure a profit on a short sale of stock. A Buy stop order can also be used by a technical expert to get long the stock after the stock breaks through resistance.

Sell Stop Orders

This order is positioned below the market and is used to secure against a loss or to protect a profit on the buy of a stock. It can also be used by a technical expert to get short the stock after the stock breaks through support.

Stop Limit Orders

A trader would also enter a stop limit order for the same reason the investor would enter a stop order. The only difference is that once the order has been elected, the order turns out to be a limit order instead of a market order. The same risks that apply to the traditional limit orders also apply to stop limit orders.

If the stock continues to trade away from the shareholder’s limit, they could give back all of their profits or suffer large losses.

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