Order Types - Market, Limit, Stop Market, Stop Limit

 

Market Order

An order to buy or sell a security at the best available market price at the time of the order. For example, you want to purchase stock EEE, which is currently trading at $7.00 a share. If you place a buy market order, it will execute at the best available price which can be higher or lower than $7.00. It is important to keep in mind that your executed price may not be the same as the price quote on the trading ticket. A Market Order guarantees execution but not price.

 

Limit Order

An order to buy or sell a security at a price you specify or better. For example, you want to buy stock AAA. The stock is currently trading at a price of $10.00, but you do not want to pay more than $9.00, so you place a buy limit order for a limit price of $9.00. This will create an open order in which if the price falls to $9.00 or lower (and there are shares available), then your limit order will execute and you will achieve a price of $9.00 or better. A Limit Order guarantees price but not execution.

 

Stop Market Order

An order in which you specify a stop trigger price to activate an open market order to either buy or sell a stock. For example, you own shares of BBB which is currently trading at $5.00 per share. You place a sell stop market order with a stop price of $4.50. If the stock price falls to $4.50 or lower, then it will activate a market order to sell the stock at the market price. Your executed price may not be the same price as your stop order price since you are selling at market.

 

Stop Limit Order

An order in which you specify a stop trigger price AND a limit price to either buy or sell a stock. For example, you own shares of CCC which is currently trading at $5.00 per share. You place a sell stop limit order with a stop price of $4.50 AND a limit price of $4.40. If the stock price falls to $4.50 or lower, then it will activate a limit order to sell the stock at a limit price of $4.40 or better. It is important to note if there is a large gap in price due to volatility, then it is possible for the price to fall below the stop price AND below the limit price, in which you would NOT be due an execution, until the stock price reaches your limit price or better.

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