What are Market Orders?
A market order is to buy or sell a financial instrument, which can be executed immediately at current market prices for the best available price. That is, the lowest asking price of those offering to sell and the most excellent offering price of those seeking to buy.
A limit order instructs the broker/dealer to execute a transaction only at a specified (or better) price. Limit orders are used when investors seek specific entry points.
For example, an investor who wants to buy at any price below $20 may enter a limit order that specifies that stock must be purchased below that stated maximum level.
A stop-loss order is designed to limit an investor’s loss on a position in security by triggering the sale of that holding once it reaches a pre-selected price.
A stop order also referred to as a stop-loss order, is used to minimize a loss or protect a profit on a security position.
Stop orders are usually placed as protective mechanisms against losses. However, they can also be used on the upside if an investor wants to limit his upside potential on a particular stock.
Stop orders are not guaranteed and only become effective once the trade has entered the market, which can be executed at an undesirable time or price.
For example, if Apple is trading at $100 and you place a sell stop order for $99, your sale will be executed once its share price reaches $99 – assuming somebody is willing to buy at this level.
A market-on-close (MOC) order is an entry or exit order to be executed at the market close. MOC orders do not guarantee liquidity and can fill at any price level, including outside the closing range, the inside quote, the bid or offer, or way worse.
A market on open (MOO) order is an entry or exit order to be executed at the opening of trading. A buy MOO order will result in execution for as many contracts as are available during the regular trading session whenever it takes place.
You should avoid using market orders in fast-moving and thin markets.
That is when there are not enough interested sellers/buyers to meet your requested trade size.
A market order may execute at an undesirable price than the current market rate.
Note that a limit order can also fill at an undesirable time or price, except you set your desired entry point beforehand.
Use stop orders only if you’re trying to enter with immediate effect because stop orders expire worthless if they cannot be filled by the end of the trading session.
Additional Stock Order Types
Here’s a list of several additional limitations and special instructions that many different brokerages impose on their orders, as follows:
Stop-loss orders are similar to limit orders, but they have a lower price trigger.
Stop-limit orders set two prices: the stop price, which will turn the charge into a sell order, and the limit price. Instead of becoming a market order to sell, it is changed to a limit order that will only execute at the limit price or higher.
This may help prevent a potential stop-loss problem, in which prices plummet but then rebound.
All or None (AON)
This is an essential kind of purchase, especially for penny-stock investors. An all-or-none order ensures that you will receive either the entire quantity of stock you requested or none at all; this is typically difficult when a stock is illiquid, or there’s a limit on the order.
For example, if you place an order to buy 2,000 shares of XYZ but only 1,000 are available, an all-or-none restriction implies that your request will not be fulfilled until at least 2,000 shares are available at the price you want.
If you don’t impose an all-or-none limitation on your orders, your 2,000 share purchase would be split into two portions: one thousand sold and another thousand kept.
Immediate or Cancel (IOC)
An IOC order stipulates that any amount of an order that can be completed in a very brief period, such as seconds or less, must be filled and then canceled.
If no shares are traded during the “immediate” interval, the order is completely deleted.
Fill or Kill (FOK)
An AON order with an IOC specification is a special kind of buy that demands the entire amount to be traded in a very brief period, ranging from seconds to several minutes. If neither of the above conditions is satisfied, the order will be canceled.
Good ‘Til Canceled (GTC)
Brokerages typically restrict the maximum amount of time you can keep an order open (or active) to 90 days. This limits the amount of time you may stay different orders busy. A good-til-canceled order will remain life until you decide to cancel it.
The Bottom Line
Knowing what each order does and how each one may influence your trading can help you determine which order is appropriate for you, saves you time, lowers your risk, and, most significantly, costs less. Check out Saxo for more information.