Speak Stocks » limit orders

Types Of Stock Market Orders

Amey S — Tue, 02 Jun 2009 21:06:30 +0000

When it comes to the stock market there are numerous amounts of ways to execute an order to buy or sell and order. Most people are familiar with the theory of buying or selling at a set price and then moving on… but how your options have grown.

The following are a list of some of the more popular stock ordering options that are available to traders.

Market Order - Choosing market for the order type indicates you wish to seek an immediate execution for your order at the current market price. By using this type of market execution, you are letting the price of action being determined by your broker. While these orders are easy to use, there is a downfall. Because you do not specify a stock price, technically the purchase price could be anything.

Limit - Choosing limit for the order type indicates you wish to seek the purchase or sale of a stock at a specific price or better. Unlike market, limit orders allow you to lock in the stock at your specific price.

Stop Market – Choosing stop market for the order type indicates you want your stop order to become a market order once a specific price has been reached. For example, if stock x sits at $20 and you want to buy it once it passes $22, then your stock market order would be set at $22.

Stop Limit – Stop limit is a combination of stop market and limit orders. Once the activation price is set, then your limit order goes into effect.

Trailing Stop – Trailing stops are protective orders. They are usually used as a form of stops to protect profits. By choosing some percentage points or actual dollar figures, the trailing stop will move with your order and execute trade when criteria is met.

Broker Center – Find the stock broker that meets your needs.

Using Limit Orders to Reduce Risk

Amey S — Sun, 28 Sep 2008 04:18:43 +0000

Probably one of the biggest mistakes most traders make is using market orders. Let say I want to buy some shares of Microsoft at $30. A market order will execute a trade at whatever price your broker can grab it at. Sometime they will find you a great deal, but many times they will just get the first one they come across, so they can give the better deals to those that have inputed limit orders. After all they want to make commission off everybody right. So if you left no specifications, then why waste them on your trade?

Limit orders allow traders to set a maximum price they are willing to buy a stock at. With market orders, there is no maximum. Limit orders are especially good when it comes to stocks that aren’t as liquid. The spread between the buy (ask) and sell price is larger.

In our example that included Microsoft, a market order may not impact you as heavily as other stocks. Microsoft is obviously a very liquid stock, so the difference (spread) between the current market price and the buy (ask) price is not that much. In less liquid stocks those differences could be a dollar. A limit order allows you to lower your risk.

A less liquid stock means there are not as many shares being bought and sold at a given time. Simple economics says less supply higher prices, thus the reason for larger spreads. With a market order, your broker may grab some share $2.00 higher than what you wanted it. Again, with a limit order we can control what we want.

The importance of limit orders remains the same on buy and sell orders.

In most brokerage settings, market orders are the default; however, they can easily be changed. Use your brokerage support system if you have trouble finding how to use a limit order when conducting a trade.