Types of Orders in Stock Trading
What Is An Order?
An order refers to the instructions/ guidelines an investor gives their broker on how to trade their stocks. Some are as simple as just ‘buy’ or ‘sell’ while some can be quite complicated. Below is a brief introduction to the types of orders in the stock market.
- Market Orders
These are the simplest orders in a market. The trader only asks to buy a stock (at the lowest available price) or sell a stock (at the highest possible price). A trader can expect that their order will be executed but can not anticipate the exact price at which their order will be executed, hence slippage. Slippage refers to the variation between a trader’s expected rate of execution and the actual price at which a trade is executed. They are less favorable for shares with high volatility.
- Stop Orders
A stop order is an order to sell or buy a stock at a particular price. It is used to prevent further losses and to lock in gained profits. In the case of losses, an investor who has shorted a stock might hypothetically put in place a buy-stop order to ensure that the price does not go higher.A sell-stop order can be used to make sure that appreciation in the value of a stock is not lost though volatility of share prices.Once a price higher than purchase price has been attained, the sell-stop order is enforced to ensure that any monetary gains are locked in before the price begins to dip. A sell-stop order can also be used to make sure that a stock is sold at the stop price or the best available price before the price falls too quickly.
- Limit Orders
Unlike Market orders, a trader has control over the price at which their trade will be executed at but will not be assured of the trade being executed. It just means to buy or sell shares at a specific price or better. A limit order to buy will be performed at the stated price or any lower price while a limit order to sell is executed at the stated price or a higher price. Complex examples of limit orders are ‘fill or kill’ orders and ‘all or none’ orders. ‘Fill or kill’ orders require that the orders are executed in the first attempt. If not, they are canceled. ‘All or none’ orders demand that a wholesome rule is met. If there aren’t enough available shares to satisfy the request, the order is canceled.
- Conditional Orders
These are complex trades that are only enforced or canceled when certain parameters are met.
- One -Cancels-The-Other-Order(O.C.O.)
Here a trader makes multiple orders together. If any of these is executed fully, the rest are canceled. They are used to link stop loss orders to limit orders to control losses and lock in profits at a go. An investor holding a stock ‘x’ at 30 per share may put in place a limit order of 45 per share and a stop loss order at 15 per share. This way, if the price rises to 45 per share, a market order to sell is automatically initiated to lock in profits gained and automatically cancels the stop loss order. If the price dips to 15 the stop loss order starts a market order to sell before the price goes any lower and prevents further losses; the limit order is automatically canceled. OCO are a good way to reduce time wasted in communication between a broker and the trader in volatile markets.
- Order Send Orders(O.S.O.)
This order creates an ‘Only if’ scenario. The second order is only triggered if the first order has been filled. For example, a trader may put in a limit buy order to purchase a stock at $10 and simultaneously put in and a limit-sell order to immediately sell the shares at $11. The sell order would only be executed after the buy order has been filled.
- Good ‘Til Cancelled Orders(G.T.C.)
Here, a trader instructs their broker to sell or buy a stock at a particular price. Unlike other order types that end in a day, GTCs are held until the order is filled or trader requests to cancel it.
- Good ‘Til Date Order (GTD)
A GTD is kept active for a predetermined period during which it can be filled and after which it is canceled.
- At-The-Opening Order(ATO)
This order should be filled as soon as trading hours commence and trading is opened. If not, the order is canceled.
- Day Orders
These are the default mode of most trades unless otherwise stated by a trader. All trades are active for a single day. If they are not filled in a single trading session, they are canceled.
- At-The-Close Orders
These are filled as close to the end of a trading session as is possible or not executed at all.
- Minute Orders
They are implemented within a period (in minutes) desired by a trader or not completed at all.