Stock Trades through Market, Limit, and Stop Orders
Even novice investors must know the different types of orders in stock trades. Market, limit, and stop orders are basic orders that serve different purposes, though stop-limit and trailing stop orders can also be very useful. This article will touch on the effects of each order type in stock trade. Read in detail how limit and stop orders differ here.
Different Types of Orders in Stock Trading: Market Orders
Market orders are the most straightforward orders in stock exchange. Setting a market order to buy will buy a predetermined amount of shares of a given security at market value at the next available time. There is no assurance of price, but market value will usually be close to what it was when the trade was enacted. A market order to sell will sell a given amount of a given security at market value at the next available moment. Again, no price is assured, and market fluctuations may cause the purchase/ sell price to rise/ drop. It is never a good idea to set a market order when the market is closed to be in effect for the next day, because one has no idea what value the stock will have when the market opens and the order is executed.
Limit Orders in Stock Trade
Limit orders are orders to buy or sell that guarantee a certain preferable price or a more profitable one if they are carried out. However, there is no guarantee that the orders will be fulfilled. For instance, for a stock trading at $7 per share, and investor could sell a limit buy at $6. Then, if the stock should fall to $6 or less, it will automatically buy at up to $6 per share and no more, presuming it remains below $6 long enough for sellers to be connected to the investor. A limit sell would use a higher sell price than market value, and it would only sell at that price or higher. Check out stop-limit orders, which combine the powers of each.
Stop Order, a Type of Stock Trading Order
Stop orders are orders that seek to cut loss. These work by setting stop prices to buy or sell, but instead of the way in which limit orders do so, they work the down side. For instance, a stop limit to buy would include setting a stop price above market value, and if the stock should increase to that value, the order will become a market order. So, essentially a buy stop order is a stock trade to buy before something gets too high when it is on the rise. On the other hand, a stop order to sell will be placed below market value of a security in possession, and if the value should drop down to the stop price, a market order to sell will be triggered. This will minimize loss by selling before a possessed security goes too low in value. Trailing stop orders are designed to use the powers of the stop order to guarantee profits, if possible.
In addition to these different types of stock trading orders, stop-limit orders and trailing stop orders may also be utilized by investors. These are valuable tools that really help to limit loss and maximize gain.