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Types of Orders

Types of Orders - Basic

  • Market order. An order that is filled at the best possible price. This means that a buy order will get filled at the ask price and a sell order will get filled at the bid price. It should be noted that if the size of your order is larger than the size showing up on the bid/ask then you are only going to get the stated price on the available size.

    For example: The current market for a stock is 25.01 bid and 25.05 ask and there are 500 shares being bid and 700 shares being offered at the ask. You need to sell 5,000 shares so you enter a market order. If the market for a stock is thin (if there isn't much volume) then the first 500 shares you sell will be matched with the 500 shares bidding at 25.01. After that happens though the market may instantaneously drop to, say, 24.98 bid and 25.02 ask at which another 500 or 1,000 shares may be sold at 24.98. Then the market may drop another couple of cents where the rest of the order gets done. If the stock is highly liquid then you shouldn't have to worry about the market moving because of your order.

  • Limit order. An order where a price is specified by you and the order won't get executed at a price worse than what you state. A limit order isn't guaranteed to be executed until the "other side" of the market goes through your price. For example, if the market is 30.01 bid and 30.04 ask and you enter an order to sell at 30.02 then your order won't be guaranteed an execution. If someone enters an order to buy at 30.02 then you may get an execution but you are still not guaranteed to get an execution because there may be other offers now at 30.02 competing with you.

  • Stop order. An order to buy at a price above or sell at a price below the current market. Stop orders become market orders when the price is hit. Stop orders are sometimes referred to as "stop market" orders. Most times these are used as protective orders to make sure you don't lose more than a certain amount on a trade. For example, if you buy a stock at $53 and don't want to lose more than $1 then you can enter a sell stop at $52.

    Stop orders can also be used to enter trades. The traders who do this are usually breakout traders. An example would be if a stock has been trading between $20 and $21 for an extended length of time and you are looking to buy it if it breaks out of the trading range (above $21). In this case you would enter a buy stop at $21.01.

  • Stop limit order. Stop limit orders are the same as stop market orders except there is a limit to what price you are willing to accept. Therefore, when you enter a stop limit order you are entering two prices. One price is the price at which you want the stop order to be triggered and the other price is the worst price you are willing to accept. The purpose of this order is to set a price where you want to get out of your position but set another price that says "If the stock falls this far then I want to hold onto it."

    An example would be if you buy a stock at $12 and wanted to limit your risk to $1.00. But if the stock made a big drop (like 4 points) then you would want to hold onto it. In this case you would put in a sell stop at $11.00 with a limit of $8.00.

Types of Orders - Advanced

There are more complicated types of orders where you can place restrictions or conditions on the order. These types of orders have been popular with futures traders since the 80's but have only fairly recently broken into the mainstream stock brokerages. Not all of these order types are offered by all brokerage firms. So before assuming you can utilize these order types, I would check to see which orders your broker accepts and also which orders each particular exchange accepts.

Although these orders can be useful to day traders, they probably won't be of much to use to the average trader. I would also be a little careful using some of these orders. I have doubts as to whether some of these orders would get executed in fast market conditions and am not fully confident in the broker's ability to generally handle these orders.

  • $ Trailing Stop. A stop order which adjusts with market prices in order to lock in profits on a trade. For example, if the market is trading at $35.50 and you enter a trailing stop $0.50 below the market then the stop order is currently at $35.00. If the market moves up to $35.60 then the stop order is automatically raised to $35.10.

  • % Trailing Stop. A trailing stop order which trails the market by a stated percent of the price.

  • Immediate of cancel (IOC). An order that calls for immediate execution and any portion not executed is cancelled immediately.

  • All-or-none (AON). An order that must be filled in its entirety. There are no partial fills.

  • Kill-or-fill (FOK). An order that must be filled in its entirety or immediately killed.

  • One-cancels-other (OCO). This order is also known as "order-cancels-order". You can think of these as bracket orders. Suppose you buy a stock at $52 and want to sell it at either $53 for a gain, or $51 to limit your loss. You could enter an OCO order to do this so when one order gets filled it will cancel the other order.

  • Do not reduce (DNR). This order specifies that the buyer doesn't want the order price to be adjusted for dividends when the stock goes ex-dividend.

  • One-triggers-other (OTO). An order which triggers another order. An example would be if you want a stop order entered right after a trade is executed.

  • At the close. Some people refer to this order as a "market on close" (MOC) order. This order is useful when you think the market will be tanking at the end of the day and you want to get in before the close so you will have a position in the market before the market opens the following day. It is particularly useful if you are afraid the market might gap at the open the next day or if there is news being released after close the same day.

  • Reserve Order. Placing a reserve order enables you to hide the actual size of your order from the market. This can be useful if you think your order is large enough to scare off buyers. With reserve orders, you specify both a display and non-display quantity. Only the display quantity of the order will be visible to the market. As the display quantity is filled, it will be replenished from the invisible portion of your order until the order is completely filled. Many times, reserve orders are available only as day orders and also can only be entered only through ECNs.

There are also combinations of these orders, such as an "Order-triggers-OCO" in which execution of an order activates an OCO order.

Orders - Length of time

  • Day order vs. Good-till-canceled (GTC). Some brokers, like E*Trade, have GTC orders set to expire in 60 days. This is because the broker doesn't want you entering a good-till-canceled order, forget about it and have it hit a year later when you forgot to cancel it. Some brokers, like TD Ameritrade, let you specify the specific day on which you want your GTC orders to expire.

  • Regular session or Extended Hours or both. Some brokers let you specify whether you want your order to be for the regular session, after-hours session, or both. Some brokers, like TD Ameritrade, even also let you specify whether you want your extended hours orders to active before-the-open only, after-the-close only, or both.

Not all of these order types will be offered by every online broker (i.e. Ameritrade, E*Trade, Scottrade, OptionsHouse, OptionsXpress, TradeKing, Interactive Brokers, Zecco, Schwab, and Fidelity).


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