Stock Order Types
Updated: January 30, 2020
One of the most overlooked skills in modern electronic trading is execution or understanding order types as well as when and how to use them. This is a critical component of any trade because using the correct order type can help ensure that orders are executed in a timely manner and at the intended price. The following are the types of orders generally available:
A market order is an order to buy or sell stock immediately at the best available price for the number of shares specified. In a market order, immediate execution of the trade takes precedence over the price paid for the stock. Typically, brokerage houses will guarantee the execution of the order; however, a guarantee in price is not given. That said, a market buy or sell orders are usually filled at the prevailing ask (selling) price, as long as there are enough shares available to complete the order.
It’s important to note that usually doesn’t mean always.
So, because there are no guarantees that the order be executed and filled at a specified price, it is possible that the order is executed at a price that is very different from the level at which the stock is trading at the moment the order is sent.
This slippage, or difference in price from the moment the order is sent to its actual execution, typically occurs during periods of volatile or fast-moving markets. Slippage is also common in market orders placed for stocks that are less liquid in trading.
A limit order is an order to buy or sell stock at a price specified by the customer.
The broker will make an attempt to immediately buy or sell at the price specified, however, does not guarantee that the order will be executed in full or at all.
Limit orders are especially useful in volatile or fast-moving markets where market orders have the possibility of getting filled at extreme price levels, beyond the expectations of the customer. Limit orders are also used by traders who wish to execute a trade to buy or sell a stock if the market reaches a level that is attractive to them.
Stop Market Order
Stop Market Orders are dormant orders that are triggered and become active only if and when the stock reaches a price specified by the customer. Stop orders are typically used by investors to control risks in the event that the price of a stock moves to a level at which he wishes to close a trade. This is usually done in an effort to limit losses or protect gains.
Stop Limit Order
A stop order that is accompanied by a limit order. With a stop limit order, upon reaching the stop price, a limit order is initiated to buy or sell a stock only if it trades at the specified price or better. This type of stock market order is not subject to slippage but it is possible for the order to be filled partially or not at all.
An order that is input into the platform and saved but not sent to the exchange. Staging means building the entire order out with entry, all targets, protective stops, duration and any special instructions but then saving it rather than placing it into the market for execution. This allows the investor to see an opportunity in the future and prepare for it while conserving their Buying Power. As the order is not in the market, the amount needed to execute is not charged or held in escrow. When the trader is ready to execute the trade, one click of a mouse releases the order into the market already built and ready to go.
Time and Size Conditions on Stock Market Orders
Traders can set various time limits and/or conditions on their buy sell orders. These include:
An order that is good only for that day during the regular market trading hours and is cancelled at the end of the trading session if not executed. This is the most common time limited order.
Good Till Cancelled (GTC) Order
An order that remains open until filled or cancelled by the customer. (Some brokerage houses set limits for this type of order to expire after 30 or 60 days. Check with your broker to be certain).
Immediate or Cancel (IOC) Order
This is an order that must be filled immediately in its entirety, or as a partial fill with any unfilled portion of the order being cancelled.
Fill or Kill (FOK) Order
This order must be filled immediately in its entirety or be cancelled. Partial fills are not acceptable.
All or None (AON)
An order that must be filled in its entirety or be cancelled but does not have to be filled immediately.
Market on Close (MOC) Order
An order to buy or sell stock at or near regular session closing.
An order to buy or sell a specified number of shares at a price contingent upon a minimum number of shares to be filled in the event of a partial fill.
Do Not Reduce
Instructs the broker not to reduce the price of your limit order in the event that a stock goes ex-dividend, and the prevailing price of the stock is reduced by market makers by the amount of the dividend.
Market on Open (MOO)
An order that is set to be executed when the market opens.
Market on Close (MOC)
An order that is set to be executed as or just after the market closes.
Types of Bracket Orders
Some of the most useful order types fall under the heading of brackets. They are orders stacked on top of one another and are designed to protect the trader against losses and lock in any gains.
Order Sends Order (OSO)
Once an initial order filled, an additional order(s) will be triggered. The additional or secondary orders are dormant until the initial or primary order is filled.
Order Cancels Order (OCO)
This is a condition in which, if one order is filled the other order is immediately canceled.
As can been seen, there are numerous ways to set up an order for execution, each offering unique benefits to traders.
Some offer flexibility by allowing for trades to be set up in advance based upon expected market movement.
Others provide protection by limiting losses and/or protecting gains.
Still others help manage how a trade is filled (partial or in full), etc.
Being well-versed in the available order types and their benefits could lessen the stress and increase a trader’s enjoyment.
To further enhance their order execution prowess, traders should also pursue a firm understanding of how trades are routed through the market.
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