Types of Stock Orders - Stock 4 Today
The two most common types of orders that you may place with your
broker are Market and Limit. In addition your may enter a Day
Order which will remain in effect only for the current day or a Good
till Cancelled Order which normally remains in effect for 30 days or until you
cancel it. It is recommended that you only enter day orders unless there
is some special circumstance that would require you to enter a good till
cancelled order
Market Order
A Market Order will be executed automatically at the current
bid or ask price. If you enter a market buy order it will be executed at the current Ask
Price when your order reaches the floor of the trading exchange. If you
enter a market sell order it will be executed at the current Bid Price
when your order reaches the floor of the trading exchange. A Market
Order almost always insures that your order will be executed
although the actual price at which your order is filled may be better or
worse than you expected.
Limit Order
Another type order allows you to specify the most you are willing to pay
when buying or the least you are willing to accept when selling. This is
known as a Limit Order. For instance if you enter a limit buy order at
53.21 you will only pay 53.21 per share (or less) for your stock. If you
enter a market sell order at 54.16 you will only sell for 54.16 (or
more) for your stock. Because of the potential price differential with
the bid or ask price, you order may not be executed.
When entering a limit order it is suggested that you specify a price
somewhere halfway between the bid and ask price. When closing out a
position because you think the price is ready to reverse, always
enter a market order.
Stop Loss Order
A Stop Loss Order allows you to
specify a Trigger Price for a stock you own. Once the
stock drops to (or below) your Trigger Price, the order becomes a
Market Order and will be sold at the best price available (even
if the stock price turns back up). This is a way to protect
yourself from a sudden decline in price for a stock you own or to
protect your potential profit if the price has gone up since you bought
it. Many investors use the Stop Loss Order as insurance
against an unexpected price decline.
About Bid and Ask Prices
The Bid Price is the highest price anyone is willing to pay for a particular stock at the
moment. The Ask Price is the lowest price anyone is
willing to sell a particular stock for at the moment.
If you enter a Market Order to buy a stock you
will pay the Ask Price when your order reaches the trading
floor. This could be a good bit different from the Ask
Price when you placed the order. On a fast moving, thinly
traded, or volatile stock these prices can and will change very rapidly. You could pay substantially more than you expected! If this is a
major concern, you may want to place a Limit Order instead.
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