What is an order?
Orders are used by investors to tell brokers when – and how – to buy or sell assets. These instructions are usually made online or by phone.
Types of order
Orders can be split into several categories. They include:
- Market order
Investors use these orders when they want to buy or sell a security immediately. When brokers receive this instruction, they will execute the trade at the current market rate. Although this order guarantees that a transaction will take place, it doesn’t guarantee the price, as a share’s value may have fluctuated by the time of execution.
- Stop-loss order
This order is used when a trader wants to buy or sell stock when prices reach a pre-determined level. As soon as this milestone is reached, a market order is implemented so the trade is executed straight away. When used correctly, it can help traders to limit their losses.
- Limit order
If a buyer only wants to acquire stock when a price is at a set level or lower, or a seller wants to exit a position as soon as prices hit a peak, limit orders can be used. They help ensure that traders never pay more for an asset than planned, and lock in profits when share prices grow.
Things to remember
Whereas market orders are guaranteed to take place, limit orders are not. As an example, let’s imagine shares in a gas company are currently trading at $100. Oscar can put in a limit order specifying to his broker that he would be willing to purchase 50 shares if prices reach $70 or lower. Meanwhile, Jasper can put in an order stating that he will sell his shares if their value exceeds $130 apiece. If prices stay constant, these orders will never be fulfilled.
Some orders remain in place indefinitely until the requirements for execution are satisfied, while others will only be in force for the duration of the trading day.