This post is to help new traders understand the different types of orders and how they relate to trading. Always practice trading in SIMULATION first!!!
1. Market Orders
Buy Market: An order to buy a security immediately at the current market price.
Example: The current market price of a stock is $100. You place a buy market order, and the order is executed at $100.
Sell Market: An order to sell a security immediately at the current market price.
Example: The current market price of a stock is $100. You place a sell market order, and the order is executed at $100.
2. Limit Orders
Buy Limit: An order to buy a security at or below a specified price.
Example: You want to buy a stock at $95, so you place a buy limit order at $95. The order will only execute if the stock price drops to $95 or lower.
Sell Limit: An order to sell a security at or above a specified price.
Example: You want to sell a stock at $105, so you place a sell limit order at $105. The order will only execute if the stock price rises to $105 or higher.
3. Stop Orders
Buy Stop: An order to buy a security once its price reaches a specified price, known as the stop price.
Example: You want to buy a stock if it starts to rise above $110. You place a buy stop order at $110. If the stock price reaches $110, the order becomes a market order and executes at the next available price.
Sell Stop: An order to sell a security once its price reaches a specified price.
Example: You hold a stock and want to limit losses if the price falls below $90. You place a sell stop order at $90. If the stock reaches $90, the order becomes a market order and sells at the next available price.
4. Stop-Limit Orders
Buy Stop-Limit: A buy stop order that becomes a limit order instead of a market order once the stop price is reached.
Example: You want to buy a stock if it rises to $110 but not pay more than $112. You place a buy stop-limit order with a stop price of $110 and a limit price of $112.
Sell Stop-Limit: A sell stop order that becomes a limit order once the stop price is reached.
Example: You hold a stock and want to sell if it falls to $90, but not below $88. You place a sell stop-limit order with a stop price of $90 and a limit price of $88.
5. Order Types Related to the Bid/Ask Spread
Buy Ask: An order to buy at the current ask price.
Example: The ask price of a stock is $101. You place a buy ask order, and it executes at $101.
Sell Ask: An order to sell at the current ask price.
Example: The ask price of a stock is $101. You place a sell ask order, and it executes at $101.
Buy Bid: An order to buy at the current bid price.
Example: The bid price of a stock is $99. You place a buy bid order, and it executes at $99.
Sell Bid: An order to sell at the current bid price.
Example: The bid price of a stock is $99. You place a sell bid order, and it executes at $99.
6. Order Conditions
OCO (One-Cancels-the-Other) Orders: A pair of orders where if one order is executed, the other is automatically canceled.
Example: You want to sell a stock if it reaches $120 or buy if it drops to $80. You place an OCO order with a sell limit order at $120 and a buy stop order at $80. If one executes, the other is canceled.
GTC (Good 'Til Canceled): An order that remains active until it is filled or canceled.
Example: You place a buy limit order for a stock at $95 GTC. It remains active until the stock price reaches $95 or you cancel the order.
7. Order Instructions Based on Time
Day: An order that is only valid for the trading day on which it is placed.
Example: You place a buy limit order at $95 with a Day instruction. If it doesn't execute that day, the order is canceled.
FOK (Fill or Kill): An order that must be filled immediately and completely or canceled.
Example: You place a FOK order to buy 1,000 shares of a stock at $95. If 1,000 shares aren't available at $95, the order is canceled.
IOC (Immediate or Cancel): An order that attempts to execute immediately and cancels any unfilled portion.
Example: You place an IOC order to buy 1,000 shares at $95. If only 600 shares are available at $95, those 600 shares are bought, and the remaining 400 shares are canceled.
8. Additional Order Types
Buy Cover: An order to buy back shares that were previously sold short.
Example: You short-sold 100 shares of a stock at $100. You place a buy cover order at $90, buying back the shares if the price drops to $90.
Sell Cover: An order to sell shares that were previously bought to close a short position.
Example: You bought 100 shares to cover a short position at $90. You place a sell cover order at $95, selling the shares if the price rises to $95.
Limit If Touched: An order to buy or sell a security at a specified price or better, but only if the market reaches a certain price.
Example: You want to buy a stock at $100 if it drops to $105. You place a limit if touched order at $100 with a trigger price of $105. The order is only active if the stock touches $105.
Market If Touched: An order that becomes a market order when a specified trigger price is reached. It is similar to a stop order but can be used to buy below the market or sell above the market.
Example: You want to buy a stock if it drops to $105. You place a market if touched order with a trigger price of $105. If the stock touches $105, the order converts to a market order and executes at the next available price.
9. Time in Force (TIF)
Day: An order that expires at the end of the trading day.
GTC (Good 'Til Canceled): An order that remains in effect until filled or canceled.
FOK (Fill or Kill): An order that must be executed immediately in full or canceled.
IOC (Immediate or Cancel): An order that must be executed immediately, with any unfilled portion canceled.