With the growing grandness of the internet and digital technology, investors are finding it convenient to do trading online. A majority of them now opt to buy and sell stocks by themselves instead of paying lofty commissions to advisors for their research and advice. However, the stock market can seem complicated, volatile and unpredictable at times. Therefore, it is vital for any investor to understand the different types of stock market orders. It is beneficial as it enables an investor to determine the best strategy that fits their investment goals. Below are the different types of market orders.
1. Market orders
This refers to an arrangement that is available for purchase or sale immediately at the readily available price. While market orders guarantee instant execution, they don’t warrant a price. An investor who buys a market order pays the price that is near the posted asked one.
Those who will sell the market order will receive the price near the bid price. Investors of market orders must beware that the price that is traded at last may not be the real price that the stock will be executed in the market. Market orders are best suited to investors who love instant stock trading. Though most investors don’t know the actual prices that stocks will trade at, they are executed at prices near the ask and bid.
When trading in market orders, placement should be done outside the normal trading hours. This is between the times when the market closes and before it opens the next day. The reaction in the market often results in a move in the stock prices.
2. Limit orders
This refers to an arrangement to sell or buy a stock at an agreed or specified price. Unlike market orders that guarantee execution but not price, limit orders guarantee price but not execution. A limit order makes more economic sense in case an investor wants to buy a stock at a lower price. This is because a limit order allows an investor to specify the price that is below the actual market price. Similarly, limit orders make viable economic sense to investors who want to sell as they are allowed to quote prices above the current market price.
When deciding to invest in either a market or limit order, it is vital for investors to consider the additional costs. In most cases, market order commissions are cheaper compared to those of limit orders.
3. Stop loss or stop orders
It is also referred to as stopped order, on-stop buy or on-stop sell. It is quite different from market and limit orders because it remains inactive until a specified price is passed. When the price is passed, stop orders are then activated as market orders and shares sold at the best possible prices. It is suitable for investors who don’t have time to monitor prices of stock in the market continually but want to be protected against substantial downsides risks. It is great for those who want to go for long vacations.
Moreover, it can also act as a buy order. This is when an investor identifies a specific price that can trigger the possible purchase of stock. This way, it stops the stock from slipping away. In such a case, it indicates a potential upward trend. It is useful as it helps an investor to identify the point at which the price of a certain stock will move up.
4. All or None Order
An All or None Order is primarily important for those who love trading in penny stocks. It helps an investor to either get none or all of the stock requested. There is a restriction which the investor must meet.
5. Trailing Stop Order
In trailing stop orders, there is a defined set percentage away from the current market price of a security. A trailing stop designed for long position often has a lower security market price while that of a short position is set above the current market price. It helps to protect profits by making the trade open provided it is moving in the desired direction. It tracks stock prices automatically thus it is considered more flexible compared to fixed stop loss. They are suitable for use in the case of falling markets. It takes out the emotion in the selling decision and protects the investment capital of investors.
The stock market can be challenging but lucrative at the same time. It requires an investor to understand the tricks behind stock day trading. The above are the basic types of stock market orders.