Types of Orders
The two major types of orders that every investor should know are the market order and the limit order.
A market order is the most basic type of trade. It is an order to buy or sell immediately at the current price. Typically, if you are going to buy a stock, then you will pay a price at or near the posted ask price. If you are going to sell a stock, you will receive a price at or near the posted bid price.
One important thing to remember is that the last-traded price is not necessarily the price at which the market order will be executed. In fast-moving and volatile markets, the price at which you actually execute (or fill) the trade can deviate from the last-traded price. The price will remain the same only when the bid/ask price is exactly at the last-traded price.
Market orders do not guarantee a price, but they do guarantee the order's immediate execution.
Market orders are popular among individual investors who want to buy or sell a stock without delay. The advantage of using market orders is that you are guaranteed to get the trade filled; in fact, it will be executed ASAP. Although the investor doesn't know the exact price at which the stock will be bought or sold, market orders on stocks that trade over tens of thousands of shares per day will likely be executed close to the bid/ask prices.
A limit order, sometimes referred to as a pending order, allows investors to buy and sell securities at a certain price in the future. This type of order is used to execute a trade if the price reaches the pre-defined level; the order will not be filled if price does not reach this level. In effect, a limit order sets the maximum or minimum price at which you are willing to buy or sell.
For example, if you wanted to buy a stock at $10, you could enter a limit order for this amount. This means that you would not pay a penny over $10 for that particular stock. However, it is still possible that you buy it for less than the $10 per share specified in the order.
There are four types of limit orders:
Buy Limit: an order to purchase a security at or below a specified price. Limit orders must be placed on the correct side of the market to ensure they will accomplish the task of improving price. For a buy limit order, this means placing the order at or below the current market bid.
Sell Limit: an order to sell a security at or above a specified price. To ensure improved price, the order must be placed at or above the current market ask.
Buy Stop: an order to buy a security at a price above the current market bid. A stop order to buy becomes active only after a specified price level has been reached (known as the stop level). Buy stop are orders placed above the market and sell stop orders placed below the market (the opposite of buy and sell limit orders, respectively). Once a stop level has been reached, the order will be immediately converted into a market or limit order.
Sell Stop: an order to sell a security at a price below the current market ask. Like the buy stop, A stop order to sell becomes active only after a specified price level has been reached.
If I wanted to buy GOSS based on its chart pattern, I would buy at the market and set up my stop loss at $11 and my target at $15.60. This gives me a 2 to 1 reward to risk on the trade. I would set up a Stop order for the stop loss at $11 and a Limit order at $15.60. These are OTO (one triggers the other) and OCO (one cancels the other).
This example is using www.webull.com for the actual broker transactions.
Additional Stock Order Types
Stop-Loss Order: Also referred to as a stopped market, on-stop buy, or on-stop sell, this is one of the most useful orders. This order is different because, unlike the limit and market orders, which are active as soon as they are entered, this order remains dormant until a certain price (the stop price) is passed, at which time it is activated as a market order. For instance, if a stop-loss sell order were placed on the XYZ shares at $45 per share, the order would be inactive until the price reached or dropped below $45. The order would then be transformed into a market order, and the shares would be sold at the best available price. You should consider using this type of order if you don't have time to watch the market continually but need protection from a large downside move. A good time to use a stop order is before you leave on vacation.
Stop-limit Order: These are similar to stop-loss orders, but as their name states, there is a limit on the price at which they will execute. There are two prices specified in a stop-limit order: the stop price, which will convert the order to a sell order, and the limit price. Instead of the order becoming a market order to sell, the sell order becomes a limit order that will only execute at the limit price or better (better in this case means a price higher than the limit price). This can mitigate a potential problem with stop-loss orders, which can be triggered during a flash crash when prices plummet but subsequently recover.
All or None (AON): This type of order is especially important for those who buy penny stocks. An all-or-none order ensures that you get either the entire quantity of stock you requested or none at all. This is typically problematic when a stock is very illiquid or a limit is placed on the order. For example, if you put in an order to buy 2,000 shares of XYZ but only 1,000 are being sold, an all-or-none restriction means your order will not be filled until there are at least 2,000 shares available at your preferred price. If you don't place an all-or-none restriction, your 2,000 share order would be partially filled for 1,000 shares.
Immediate or Cancel (IOC): An IOC order mandates that whatever amount of an order that can be executed in the market (or at a limit) in a very short time span, often just a few seconds or less, be filled and then the rest of the order canceled. If no shares are traded in that "immediate" interval, then the order is canceled completely.
Fill or Kill (FOK): This type of order combines an AON order with an IOC specification; in other words, it mandates that the entire order size be traded and in a very short time period, often a few seconds or less. If neither condition is met, the order is canceled.
Good 'Til Canceled (GTC): This is a time restriction that you can place on different orders. A good-til-canceled order will remain active until you decide to cancel it. Brokerages will typically limit the maximum time you can keep an order open (active) to 90 days.
Day: If you don't specify a time frame of expiry through the GTC instruction, then the order will typically be set as a day order. This means that after the end of the trading day, the order will expire. If it isn't transacted (filled) then you will have to re-enter it the following trading day.
Take Profit: A take profit order (sometimes called a profit target) is intended to close out the trade at a profit once it has reached a certain level. Execution of a Take Profit order closes the position. This type of order is always connected to an open position of a pending order.