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Types of Orders

There are many different types of stock orders. Some orders are simple and basic, others are complex. Often the same type of complex order is called different names by different brokers.

At Insight Stock Picks we generally use just 3 types of orders. The three types of orders are universally considered the three basic types of orders. If we ever use a type of order that is not on this list, it will be explained fully in our daily alert.

Our three basic order types are:

  1. Market Orders
  2. Limit Orders
  3. Stop Orders

Market Orders:
Market orders instruct your broker to buy at whatever the current price is at the time the order is to be executed. This type of order is usually used when the trader is afraid the stock's price is about to move very quickly. The concern is that their order will not get filled if it is entered with a specific price. You are essentially saying fill me immediately at the best price you can get.

For example:

A company just released their earnings for the quarter and they were much better than most analysts expected. A trader wants to buy the stock before the stock's price soars.

The trader knows the price will rise rapidly and therefore knows that if he puts in an order with a specific price he could be entering too low of a price and may well miss getting filled. If he doesn't get filled he will have to cancel his original order and enter a new order at a higher price and hope the new order gets filled.

So instead of buying the stock at a specific price, the trader puts in an order to buy at the market, which means the trader's order gets filled at whatever price the stock is trading at when the trader's order reaches the market maker.

The advantage of market orders is that your order will almost always be filled. The disadvantage is that the price you end up paying may be considerably higher than you expected to pay.

Variation - Market on Open (MOO): This order is simply a market order that is executed at the price the stock trades upon the opening of the market.

For example on the NASDAQ, the order is withheld electronically until 9:30 am EST (The time the NASDAQ opens). At that time, the order is placed and will be filled the same way any market order placed at the opening would be filled.

There is no guarantee that a MOO order will be filled at the same price that the stock opens, but generally you will receive the opening price or a price very close to it.

Limit Orders:
A limit order is a type of order that has a specific price at which the trader wants to buy the stock. Limit orders are usually buy limit orders or sell limit orders. Buy limit orders are the type of order we most often use to enter a long position.

Buy Limit Order: A trader wants to buy a stock that is now trading at $8.25, but he want to pay only $8.00. If he enters a market order, he will get filled at $8.25

So he enters a "buy limit order" at $8.00. If during the day the stock begins to trade lower and hits the $8.00 price, his order will be filled.

Sell Limit Order: A "sell limit order" works in reverse. The stock is again trading at $8.25 and the trader wants to sell at $8.50. He would then enter a sell limit order for $8.50 and his order will be filled if the stock price rises to $8.50 or higher during the trading day.

Stop Orders:
A stop limit order has a specific price that the buyer wants the stock to trade at before the order is executed. Stop orders are either buy stop orders or sell stop orders.

Buy Stop Order: A buy stop order is an order to buy a stock once a certain price had been reached. For instance, if you want to buy a stock but only after it reaches a new high for the day, you would enter a buy stop order at a price just above the stock's high.

Example: A stock has traded as high as $10.00. You only want to buy the stock if the price rises above that price. You would enter a buy stop at $10.10. You would be filled if the price of the stock reaches $10.10, but would not be filled if the price stays below the $10.10 price.

Sell Stop Order: A sell stop order is just the opposite. You want to sell a stock but only if the stocks price falls sigificantly below the current level.

A stock is trading at $10.00 and you believe it will continue higher. However to protect yourself if you are wrong in your analysis, you enter a sell stop at $9.50. If the price falls to the $9.50 level, your stock will be sold.

Here is a table that summarizes the types of orders and what the order instructs you broker to do:

Buying Selling
Market Order Buy at the best available price Sell at the best available price
Limit Order Buy below or at a certain price Sell above or at a certain price
Stop Order Buy at a specified price, which is currently above the market price. Sell at a specified price, which is currently below the market price.

Other Order Instructions:

GTC vs. Day Order:
There are two order instructions that tell your broker how long you want him to keep the order active. One is a GTC order and the second is a Day order.

GTC Order: GTC stands for "Good Till Cancelled" and means that your broker will keep your order active until you manually cancel the order.

Day Order: A day order is just as it states, the order is kept active for the day (current market session). At the end of the day, the order is automatically canceled. If you want the order to be active the next day you must reenter the order the next morning.

Since the majority of our trades are long positions, the above examples assume that you are buying a stock to enter a long position. If we enter a short position, we will explain the exact order entry required in the daily alert.