Times are changing in the stock market. Previously, when you dealt in the stock market, you would ask for the advice of a professional who would usually take a commission after every successful trade. With the growing expansion of online technology and information, individuals no longer need the advice from professionals and can begin to dabble in stocks from their laptop, solo.
However, although this may seem appealing at first, you need to know what you’re doing before you jump in start throwing money at the computer. When it comes to trading stocks, one of the most overlooked aspects is orders and order type. There a lot of different orders and they all server a specific purpose. Kind of like a tool, such as a hammer or saw.
What is a Stock Market Order?
A stock market order is something that is placed when you trade a stock. In order to trade a stock, you need to place an “order” and there are different variations. As with the example above, orders are suited for specific purposes and shouldn’t be misused. This is why understand why order types there are and how you can use them is very important if you want profit from the stock market.
This article will go through the different order types and will explain how you can use them properly to your money making advantage. The most common are market and limit orders.
A market order is very simply and is one of the most common orders in stock trading. This is an order to buy or sell a stock at the best price possible immediately. This is for the trigger-happy traders who want to do business fast and easy. This order will guarantee that the stock will buy/sell but you don’t have control over the price.
When you place a market order to buy a stock, you will pay close to the asking price. If you sell a stock through market order, you will pay close to the posted bid. It should be noted that you may not pay the last-traded price of a stock when executing a market order. Some markets change rapidly so the price you pay will also fluctuate.
A limit order is also a common order to make. This allows the trader to set a price at which they’re willing to trade for the stock. For example, a trader can set a limit of $12 for a stock and that will be the amount they wish to buy/sell it. They will not buy or sell it for any less than $12 because that is their set limit.
When to Use Limit/Market Orders
It will depend on the commission rates that your brokerage provides for these kinds of orders. In most cases, the two balance each other out. Market orders normally have a lower commission but you’re less likely to get the best price, whereas, limit orders are more likely to get a better price but the commission is higher. The use of these orders will be situational.
Other Order Types
- Stop orders – These are useful orders that allow you to place an inactive order that becomes active when a stock passes a certain price. Once the stock becomes a certain price the stop order becomes a market order. This is useful if you’re going to be away from the computer for a few days.
- All or none (AON) – This one is often used with penny stocks. This order allows you to get all the stock you requested or none of it at all. This means that you can request 3000 shares when there’s only 2000 available.
- Good till Canceled (GTC) – This allows you to set time restrictions on certain orders. With a GTC, you can leave an order open until you decide to cancel it.
- Day orders – If you do not set a time restriction on your orders, the order will stay open for about a day before expiring.
There are various orders you can use on the stock market and they all have different purposes. It is important that you know how to use them if you are to have some success with your trades. After are the most common trades used in the industry and are great starting points for beginners. The main ones are market and limit orders and their use will be determined on the commission given by your brokerage.