This post is all about stock orders and how to get your orders executed fast at the best price.
Do you know all the order types?
Do you know exactly how all the order types you have seen on your broker’s website work?
Even though the terms may sound odd don’t worry they are all very easy to understand once you have worked through a few examples.
This is the simplest and the quickest order to execute.
When you give a market order your broker will sell or buy a stock at the current market price, whatever it may be. Depending on the market conditions, your order may not always get executed at the price you think it will.
For example, if there is a lot of volume traded, you may get a price close to the last price when you give your order.
But be careful as market orders may move the stock price a lot if the number of shares you want to trade is high compared to what is traded at the time (for example with some of the smaller companies recommended in the Quant Value newsletter).
Only use it when
You should use this type of order only when you desperately want to buy or sell a security regardless of the price, or if your order volume is small compared to the volume traded in the market.
Gives you no control
A market order gives you no control over the price but it will ensure that your order gets executed if there is enough volume to do so.
I only use market orders when buying very large market value companies, where the amount of shares I want to trade is only a small fraction of the daily volume – Microsoft on the NASDAQ stock exchange for example.
Low cost as easy to execute
Market orders are the cheapest type of orders because your broker does not have to go to much trouble to get them executed.
These types of orders are as popular as market orders; however, they have a big advantage because they let you control the price at which the order is executed.
I recommend that you use them all the time.
As the name suggests, with a limit order you tell your broker to buy or sell the stock at a fixed maximum or minimum price.
Only be executed when
The order will only be executed if the price is within the limit you have set.
For example, if you set a buy limit order at €50 but the current market price of the stock is at €60, the order will not be executed unless the price drops to €50.
Limit orders can thus be used to control the buy and sell prices of your investment.
May cost a bit more – worth it
Note that you may need to pay a slightly higher commission when you place a limit order. But if the volume traded in the company is low it is always worthwhile.
But you must remember that with a limit order your order may not get executed is the price you set is not reached. For example you set a sell limit order at €40 and the current price of the stock is €30. If the price does not reach the limit you set or higher, your order will not be executed.
Similarly a buy limit order will only be executed at the limit price or lower.
Different type of limit orders
It is also possible to further restrain buy and sell limit orders.
This can be done with a FOK (Fill or Kill) and an AON (All or None) orders.
Execute or cancelled
When you place a FOK limit order, it will either be executed in full or cancelled (executed in full here means buy exactly the number of shares you ordered).
All or nothing
On the other hand an AON limit order will only be executed in full.
This means that you will either buy or sell the complete number of shares you ordered or the order will not be executed. If the order cannot be executed it will not be cancelled (as is the case with a FOK order) but will be held for later execution up to the date of the order’s expiry.
The AON is a great type of order to use when you are buying or selling illiquid stocks.
It will avoid multiple transactions of a small number of shares - over a few days - that can be very expensive in terms of brokerage.
Unfortunately this type of order is not available from all brokers and at all stock exchanges.
Stop or Stop Loss Orders
Stop orders can be placed when you are buying or selling shares.
They are used to either buy a share or sell if a certain price is exceeded. They are mainly used to limit your losses by protecting you from a big drop in the price of a stock.
With a stop loss order, you tell your broker to sell a stock if it falls below a certain price.
Stop loss orders are generally set below the current market price. Which means if the price later falls to this price, the broker will execute your stop loss order.
For example, you own a stock, currently trading at €40 per share and want to limit your losses by selling it if the price falls below €30. You would then place a stop loss order at €30. This means as soon as the share price falls to €30 your broker will automatically sell the stock.
Important - Becomes a market order
It’s important for you to keep in mind that when triggered your stop loss order becomes a market order and it will be executed at the current market price(see Market Orders above).
For example, when you use a sell stop loss order, you are instructing your broker to sell the security at the best available price when the stop price has been reached.
If the price of a stock stays above the stop price you set the stop loss order will not be executed.
Alternatively, you can also use the buy stop order (below the current market price) to take advantage of a declining market so you can buy a stock once a certain lower price has been reached.
Stop limit order
This type of order combines the features of a limit as well as a stop order.
Once the stop price is reached; instead of a market order (like in case of normal stop orders), the stop limit order turns into a limit order. This means that the security is bought or sold at no more or less than your specified limit price.
This type of order is a good choice when placing stop loss orders for illiquid shares.
But may not be executed
Be careful if you want to use this type of order to limit losses, because if the stock price has fallen enough to exceed your stop price it may also have fallen past your limit price.
This means your stop limit order will not be executed.
Trailing Orders or Trailing Stop Orders
Important- I do not recommend that you use this type of order for the trailing stop loss system the newsletter follows – for the reasons explained above.
Like the name suggest, a trailing order is essentially a stop order where the stop price is not fixed.
A trailing stop order is thus similar to the regular stop orders but the stop price which is set as a percentage change from the highest price of a security.
This means if the price of a share were to fall by 10% from its all-time high, the order will be triggered. A trailing stop order can thus be very effectively used to protect your profits.
If you have a profit on a position you can use the trailing order to follow the price of the security. If the stock price declines by a percentage you specified, the trailing stop order will become a market order (see market order above) and will be executed.
On the other hand, if the price continues to rise the trailing order will follow it and allow you to participate in further gains.
You would use this type of order if you want to only have your order to be valid for one day. Your order will be cancelled when the market closes.
Good –Till-Cancelled-Order (GTC)
This type of an order can theoretically be in force indefinitely; however your broker may set a limit on such orders - for example 90 days. As the name suggests, this order is in effect until you cancel it.
Immediate-or-cancel order (IOC)
This type of order is either executed immediately or cancelled. However, unlike fill or kill orders an IOC order can be partially executed.
Market on Close and Market on Open (MOC & MOO)
These types of orders will ensure that you get the open or close price (or close to it) respectively on the day for which you place the order.
One cancels the other order (OCO)
This type of order is used if you have two orders in the market but you only want one of them to be executed. The execution of the one order will automatically cancel the other order.
For example - If you are invested in Microsoft at $20 a typical OCO order would be a stop loss order at $15 and a sell limit order to take a profit at $27. If one of the orders is executed, the other is automatically cancelled.
As you can see that are a lot of order types what give you quite a lot of ways to limit losses, lock in gains and give you a better buy or sell price.
Take a look at what order types your broker offers and how they are defined. This is important as the same order may differ from broker to broker. Once you have learned what is available you can start using them to your advantage.