There are several kinds of stock orders which have vastly different outcomes, and it’s vital to master these differences. Understanding the difference between stock order types enables you to see each order type as a separate tool suited to its own purpose.
Whether you’re buying or selling, it’s vital to isolate your main objective. It could be getting your order filled quickly at the current market price or controlling the cost of your trade. After that, you can decide which order type is suited to your objectives.
This review will look at the various kinds of stock orders that you can place with your broker. Also, we will look at how they differ and when to consider each one of them.
The Various Kinds of Stock Orders Include:
The most accessible and popular kind of tradeable stock is executed with a market order. As a result, market orders show that you’re ready to take whatever price is presented to you when your order is carried out.
Suppose you’d like to buy 100 Tesla shares? In that case, if the stock is trading at $175 when you execute your market, it shouldn’t come as a surprise that the price you’re required to pay is relatively more or less than the stock price (maybe $175.8 or $174.5).
A limit order enables you to restrict either the max price you’re supposed to pay or the minimum price you’re ready to accept when buying or selling a stock. The main difference between a limit order and a market order is that the former may not be executed.
Suppose you want to buy BOA (Bank of America) shares. However, you believe the stock is overvalued at its current price of $88.75, and you don’t want to reimburse more than $85. Therefore, you place a limit order to execute at $85 or less. In that case, if the stock falls to $85 or less, then your order will be completed.
Stop-loss order is available in two types, namely:
A stop-limit order automatically becomes a limit order when the stop price is gotten. Similar to other stop-loss orders, your stop-limit may or may not be implemented depending on the price variation of the security.
A stop order automatically becomes a market order when the stop price (predetermined price) is reached. At that point, the standard guidelines of market orders apply; the order is assured to be implemented, but you won’t know the price.
AON (All or None)
An AON order is vital for traders who purchase penny stocks. This type of order ensures that you either get the whole amount of stock you asked for or none at all. This is especially difficult when a limit is placed on the order, or the stock is very illiquid.
For instance, if you put in an order to purchase 5,000 shares of ABC but only 2,500 are being sold, an AON limit means that your order won’t be filled until at least 2,500 shares are available at your chosen price. However, if you don’t place an AON limit, your 5,000 share order will be partially filled with 2,500 shares.
IOC (Immediate or Cancel)
An ‘immediate or cancel’ order dictates that whatever amount of an order can be implemented at a limit (or in the market) in a very short time; usually just a couple of seconds. If no shares are traded in that ‘direct’ interval, the order will be revoked entirely.
FOK (Fill or Kill)
This type of order dictates that the entire order size be traded in a very short time, usually a couple of seconds. If the conditions are not met, then the order will be annulled.
GTC (Good ‘Til Canceled)
This is a time limit that you can use on various orders. A GTC order will stay active until you decide to abandon it. Brokerage firms usually place a limit of 90 days with regard to the maximum period you can keep an order open.
If you don’t indicate an order’s expiry date using GTC, the order will be set as a day order. This means that at the culmination of a trading day, the order will expire.
All in all, by understanding how each order illustrated above might affect your trading, you can identify which order suits your investment needs. Also, it enables you to diminish risk, save time, and, most importantly, save money.