Types of orders –Trading buy and sell
2 min read
Types of orders are market orders, limit orders, and stop-loss orders.
So, you have to understand what happens when you click the “enter” button on your online trading account. Your order isn’t always filled immediately, you have to know that.
The variety of potential ways in which an order can be filled can be surprising.
How and where your order is executed have the influence on the cost of your transaction and the price you pay for the stock.
Order execution types are:
These execution types of orders type mean the broker guarantees to carry out the order at the price set by the trader or not to execute the order at all.
The trader can set a slippage or a maximum allowable price deviation or at which the order can be executed.
When it happens that the price has varied during the processing request but still remained within the set slippage, the order will be executed with a price correction.
In the case that the price has gone beyond the limits of the slippage corridor or the slippage parameter has not been set, the order will be rejected and the trader will receive a requote price change message.
In such a situation the trader can accept the new price and the order will be executed or can refuse the order.
The advantage of instant execution as types of orders is the opportunity to enter the market at a fixed price. That is of great importance for some trading strategies.
Also, the main disadvantage of instant execution is ‘requotes’. Their number of which increases or decreases depending on the volatility of the market.
This execution type practically allows any order from the trader will be executed at the current price on the market at the moment of order processing. The price can be either higher or lower than the one the trader can see in the window of the screen.
As a rule, the trader accesses the market quicker when using market execution.
The main advantage of this execution type is the opportunity for 100% market access.
Its disadvantage is a high risk of a lossmaking position when the market is highly volatile, when the price may strongly fluctuate during short periods of time.
What different types of orders we can recognize
It is an order to buy or sell a security immediately. This type of order guarantees that the order will be executed, but does not guarantee the execution price. A market order generally will execute at or near the current bid (for a sell order) or ask (for a buy order) price.
However, it is important for investors to remember that the last-traded price is not necessarily the price at which a market order will be executed.
This is the most common type of order, a market order is nearly always filled since no price is specified.
This is an order to buy or sell a security at a specific price, which is called limit, or better.
A buy limit order can only be executed at the limit price or lower.
The sell limit order can only be executed at the limit price or higher.
For example, some investor wants to purchase shares of XYZ stock for no more than $15. The investor could set a limit order for this amount and this order will only execute if the price of XYZ stock is $15 or lower.
Limit orders are used by investors who have decided on the price at which they are willing to trade.
Stop order also noted as a stop-loss order
This is the type of order that allows traders to buy or sell a stock once the price of the stock reaches the specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order.
Buy stop order
This means, entered at a stop price above the current market price. Investors usually use a buy stop order to limit a loss or protect a profit on a stock that they have sold short.
A sell stop order is entered at a stop price below the current market price. Investors usually use a sell stop order to limit a loss or protect a profit on a stock they own.
GTC or Good till canceled
This is a modification of a limit order. Traders use it either to buy or to sell a security. This type of orders remain in force until it is canceled by the customer or executed by the broker.
This type of orders is sent to the floor for immediate execution. If it cannot be filled immediately, it is automatically canceled.
AON – All-or-None
In this type of limit orders, the broker is focused to attempt to fill the entire amount of the order or none of it. An all-or-none order varies from a fill-or-kill order because, with an all-or-none order, immediate execution is not required.
Are orders execution so mattering?
The importance of orders execution depends on the type of order you submit.
For example, if you are putting a limit order, your risk is the order might not be filled. But, if you are setting a market order, speed and price execution is more critical.
You have to know, the execution is no backup for an investment plan.
Today’s markets include real risks and can cause the execution of orders at prices significantly different than anticipated. But, with a long-term extent, these varieties are only one step on the road to successful investing.
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