Tue Apr 17, 2018 10:55pm EST
Finance Attitude - 4 Common Types of Orders when Trading in Stocks
Finance Attitude - 4 Common Types of Orders when Trading in Stocks

It is important for every stock investor to know the different types of orders in the stock market and when it is appropriate to apply them especially when you want to sell or buy stocks through a brokerage firm. Trade orders are instructions that are given to brokers to buy or sell a stock. All trades must have two orders which consist of an order to get into the trade or the buy order and an order to exit the trade or the sell order. Here are the 4 common types of orders to make trade in the stock market.

1.    Market Orders
A market order is one of the most basic types of stock market orders. A market order is an order that instructs the broker to sell or to buy at the best price that is currently available and at the time the order reaches the market. This type of order is executed immediately and you are guaranteed to get the trade filled (transacted) at the ask price as that is the price another trader is willing to sell at. There is, however, a possibility of a costly slippage but can be resolved by using only market orders that have good liquidity. Market orders cannot be accepted outside of the market hours given or when a particular stock is suspended. A market order is mostly preferred by the long-term investors because it is cheaper and the decision of making the investment is based on fundamentals that will happen over months and years and the market price is not much of an issue.

2.    Limit Orders
A limit order is an order to buy or to sell a stock at a specified price or at a better price. A buy limit order can only be executed at the specified limit price or at a lower price. A sell limit order will be executed at the specified limit price or at a higher price. With a limit order, you just don’t press the buy or the sell button but you must specify a price. Limits order advantage is that it prevents slippage.

3.    Stop Loss Orders
A stop-loss order otherwise called stop order, stopped market, no-stop buy or on-stop sell is an instruction placed with your broker to sell shares that you hold if the share price falls to a specified price. A stop-loss order is different from the limit and market orders where the order is executed immediately as the stop-loss order remains dormant or is put on hold until a certain price is passed.

4.    Conditional Orders
Conditional orders are executed only if a certain set of conditions are met. Different brokers have different conditions and you can gather more information on their websites or they can explain to you how they manage these types of orders upon request. Find out if there is an expiry date of the orders placed if the specified conditions are not met and the brokerage fees that would apply to you if you place the trade.

There are instances when all or none of these orders apply for example when investing in penny stocks. An all or none order ensures that you either get the entire stock that you requested for or none at all. An order can be active or can be placed on a time restriction of “good -till- canceled”. This means that the order will remain active until when you decide to cancel it. If you don’t specify the exact time limit or time frame of expiry, the order is set as a trading day order. If the trading day ends and your order is still not transacted, then the order expires but you can still re-enter it or make it active on the following trading day.