Basic Order Types

Once you have chosen which stocks to buy or sell in the market, you need to decide which Order Type to use in executing your trade. The Basic Order Types are as follows:

• Market Order – an order type that will buy or sell your stocks at the best Ask Price for buying and best Bid Price for selling.

Example: 

A market order to buy 100 shares of stock X, with the Best Bid and Ask at $20 and $20.10, respectively, with volume on both sides having enough coverage for the 100 shares, the order will be dealt at $20.10, unless there are any hidden orders with a better Ask Price.   

In the same scenario as above, a market order to sell 100 shares will be dealt at $20.

• Limit Order – allows you to post an order and be dealt at your desired price.  If there’s a better bid/ask price, the limit order will be dealt at the better price. 

Example: 

In a scenario where the current Bid/Ask Price is at $25 and $25.05, respectively, a buy limit order with a price of $25.10 will be dealt at $25.05. On the other hand, a sell limit order with a price of $25 will be dealt at $25. Both examples assumed enough coverage for the order volume.

• Stop Order – Also referred to as a stop-loss order which is designed to limit your losses or protect your profits on a position; an order type that will become a market order once the market price of a stock is the same as the stop price, putting you out of position at the best available bid/ask price. 

Example: 

A Sell/Buy Stop Order for Stock X at $20 for 100 shares will be activated and turn into a market order when the price is at $20, Selling/Buying the position at the best Bid/Ask price available, until the 100 shares have been covered. 

• Stop Limit Order – a Stop Order but with a Limit Price. 

Example: 

A Sell Stop Limit Order for Stock X for 300 shares with a Stop Price of $20 and a Limit Price of $19.90 will be activated and turn into a limit order when the price is at $20. The lowest price that the order will be dealt is at $19.90, the limit price.

A Buy Stop Limit Order for Stock X for 3200 shares with a Stop Price of $20 and a Limit Price of $20.25 will be activated and turn into a limit order when the price is at $20. The highest price that the order will be dealt is at $20.25, the limit price.

In both Market and Stop Orders, order fulfillment is guaranteed, the trade off, however, is the quality of the price that the order will be filled. As for Limit and Stop Limit Orders, order price quality is guaranteed but order fulfillment isn’t.

To get in and out of your trade efficiently, the need to familiarize these Basic Order Types is a must.