You want to buy or sell some stocks, but there are many types of orders that you can use. This article will detail the more common stock orders and what they mean for you when you place them.
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Sell market order
A market order; To sell a security immediately at the best available price in the current market. When placing this type of order, you are not stipulating the number of shares or dollar amount sold. Instead, your broker “hits the bid”, which means your broker will attempt to fulfil your request. He will sell more shares than are currently on offer until he has exhausted all his supply or reaches a price level acceptable to him based on his commission costs for this trade. The order placed when the market is closed will be executed at the next trading day’s opening.
Buy market order
A buy market order; To purchase security immediately at the best available price in the current market. When placing this type of order, you are not stipulating the number of shares or dollar amount that should be bought. Instead, your broker “hits the ask,” which means your broker will attempt to fulfil your request by buying more shares than are currently on offer. He’ll do it until he has exhausted all his supply or reaches a price level acceptable to him based on his commission costs for this trade. The order placed when the market is closed will be executed at the next trading day’s opening.
Limit order
A limit order; To buy or sell a security at a specific price or better. For example, if you want to purchase shares of company ABC but don’t want to pay more than $50 per share, you can place a limit order for 100 shares at $50 per share. Your broker will not execute your order if the price falls below that level. However, it also stipulates that the broker will fulfil your order if the market rises above that level even though you are paying more than initially specified. A limit order may remain open forever unless cancelled by the investor or triggered by an exogenous event such as an unexpected takeover offer for Company ABC at a higher bid price, resulting in the execution of limit orders below the current offer price.
Stop order
It is an instruction to your broker to buy or sell a security once the market reaches a certain point, known as the stop price. This type of order can be “at-the-market” or “at-a-limit”, which means it is either executed at the prevailing market price (i.e., the best available) or you stipulate a limit price for execution to take place.
A buy stop order will be triggered and purchased once the market reaches a certain point known as the stop price after which, your broker will attempt to execute your trade at
prevailing prices until they are filled in their entirety. For example, if Company ABC’s stock is currently trading at $50 per share, but you want to guarantee that you won’t miss out on buying shares below $55 per share, you could set a stop order with your broker at $55 per share.
A sell stop order will be triggered and sold once the market reaches a certain point known as the stop price after which, your broker will attempt to execute your trade at prevailing prices until they are filled in their entirety. For example, if you own 100 shares of Company ABC that you purchased at $50 per share, you may want to set a sell stop order with your broker at $45 per share. It would ensure that if the stock falls below $45 per share, your broker would automatically sell all of your shares for you at the best available price.
