Order Types Explained

You must be anxious by now to place a trade, but what type of order do you want to place? Do you want a market order, a limit order, stop order, etc etc…? All these order types may seem overwhelming and frustrate you, but each order type has its pro’s and con’s. Thus, it’s important to determine what your intentions are when placing a trade. For instance, do you care how much you pay per share? Do you want to set a price at which you would like to pay per share? These are the type of questions you need to consider when selecting an order type. Once you have determined what your intentions are, you can pick an order that will best help you meet your objective.

Before I start discussing order types, please keep in mind I am not a licensed stock broker. At my job I am not allowed to discuss order types whatsoever. Order types are associated with many more rules and regulations outside of the scope of this text. Please consultant your financial advisor before making any financial decisions.

Now that we have gotten that out of the way, let’s start talking order types! I will begin with the 2 most commonly used and easiest to understand order types, and slowly work my way down to the more advanced order types.
 

Market Order: is an order to buy/sell a security at its current (market) price, hence its name market order. The price you pay/receive depends on how quickly the trade is executed and the stocks demand (volume). Market orders placed during market hours (9:30-4pm) on a stock with volume are typically filled in 3/10 of a second or sooner. That’s fast! If the stock has no volume, the order will not get filled until there is volume. Another way to think of it is this; you can’t buy something when there is no seller, and likewise you can’t sell something when there is no buyer. When a market order is placed during non-market hours, the order will be good for the following trading day. Ex: I place a market order to buy GOOG on Friday at 4:01pm, the order will be filled on Monday at 9:30am.

• Pros: practically guarantees execution, regardless of the stock’s price.
• Cons: could easily over spend if buying, or receive less if selling, due to volatility.
• Application: used when the price of the stock is irrelevant to you. The stock is an absolute must have if buying, or a must liquidate if selling. It’s often used on a volatile stock to take advantage of its dramatic bullish/bearish price moves.