Order type for buying stocks

Helping a unique generation achieve financial independence. By Jeremy Vohwinkle 4 Comments. Investors can go online or call an automated trading platform to instantly place a trade. There are a number of different order types that can be used to help you protect losses and maximize gains if used properly.

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Market orders are the most common and easy to understand of the order types. A market order is simply an instruction to buy or sell the securities at the current market price. Unless you give different instructions, this is the type of order that will be placed. Market orders are almost always guaranteed to be executed as long as there are active buyers and sellers in the market.

One of the drawbacks of market orders is that the investor is at the mercy of the bid and ask spread. Buy orders are filled at the ask price, and sell orders are filled at the bid price. Depending on the individual stock and market activity, the bid and ask spread could be fairly significant.

Another drawback is that in fast moving markets, you may receive a different price from what the current quote is.

Limit orders do just as they say, and allow investors to set a limit on the buy or sell price. Limit orders can be either buy or sell orders. Buy limit orders are executed only when the price of the stock you want to buy is at, or lower than your limit price. Sell limit orders work the same way, only in reverse.

The risk with limit orders is that the order may never be executed. The same goes for sell limit orders never being filled. If you wanted to unload a stock at a set price and it continues to fall, you can realize additional losses as the stock declines and your order goes unfilled. The stop order is generally used to protect profits or minimize further losses.

A buy stop order is always placed at a price above the current market price, and a stop sell order is always placed below the current market price. When that stop price is reached, the order turns into a market order and will be executed at the current market price.

Investors can place various stop orders to protect gains and minimize losses without being around the computer. A rumor or press release may send traders into a frenzy and briefly send the stock into your stop territory only to reverse course moments later when things settle down.

Since stop orders turn into market orders when the trigger price is reached, you also have the possibility of executing the trade for a price that is different from the stop price. Like a regular stop order, investors use these orders to protect profits or minimize losses.

The difference is that this order turns into a limit order when the stop price is reached, not a market order. This type of order gives you more control of when and at what price the order will be executed at. With this added control comes the possibility that the order may never be filled. The reason this can happen is because if a stock is moving rapidly and hits your stop point, it may continue to move rapidly past your limit order, leaving the order unfilled.

This could result in even further losses or losing some profit as the market moves past you. All of the orders discussed so far are typically placed as day orders.

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This means that when you place an order, they are only good for the trading session that they are placed. So if you place an order at 10 a.

These orders are good until executed or you decide to cancel it. This can mean an order could stay open for days or weeks. Even so, many brokerage companies have limits on how long GTC orders can be left open. There are a number of other order types, but the ones referenced above are the most common, and should be available to all brokerage platforms. The other order types are usually contingent on other factors, and may or may not be provided by your brokerage, so you will want to check before placing any trades.

Jeremy, I am a new stock trader and familiar with some terms shared here. Thanks to share detailed info about it. Do you want to be a millionaire?

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