Stock Order Types: Know Their Functions

With the constant improvement of trading tech, stock order types are becoming more functional. And that’s good news for traders.

Instead of hiring an “expert” to execute stock trades for you, it’s better to use these orders. The following are the most common types of stock orders:

• Market Orders
• Limit Orders
• Stop Order
• A combination of these

Let’s take a look at each of them and see how they work for the stock trader.

Market Orders

Market orders are the most common stock order types. It tells the platform to buy or sell right away at the current price.

If you click to buy, you have to pay the price near the asking price. If you choose to sell, you will receive a price near the bid price.

Market orders are significant when you want to get in and out of a trade quickly.

On the flip side, using market orders doesn’t guarantee you will get the stock at the exact price you prefer. If the market volume and liquidity is low, you sometimes have to pay a different amount from what you expect.

Limit Orders

Limit or pending orders let you buy or sell securities at a specific price in the future. You can use this to automatically execute a trade if the stock reaches your desired price. If the stock doesn’t contact the price, the order will not complete the trade.

The following the two kinds of limit orders:

Buy Limit

A buy limit order is an order to buy a security at or below a specific price. You place this order at or below the current market bid price.

Sell Limit

A sell limit order is an order to sell a security at or above a certain price. You place this order at or above the current market ask price.

Stop Orders

Stop orders are orders to buy or sell a stock once the price reaches a certain price. Once the stock reaches that price, the stop order becomes a market order. It will then execute the trade.

Buy Stop Order

This one is an order to buy a security at a price higher than the current market bid. You typically place these orders above the market price. Traders use this order to lock in profits once the stock moves up.

Sell Stop Order

This order, on the other hand, is a stop order below the current market ask. You place this somewhere below the market price so you can protect your trade from a sudden decline in price.

Use These Stock Order Types

These stock orders are in place for good reasons. You can’t always sit in front of your monitor to watch the candlesticks move.

At the same time, it’s quite a challenge to be quick on executing trades when the market shows great volatility. These orders become very convenient if you think about their automation capabilities.

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In addition to that, orders like this are a lifesaver, especially the stop orders. They help you lock in profits when the market is bullish and minimize the risk of losing a lot when it’s bearish.