The type of trading orders you use can make or break your results. If you use the right type of orders you are typically entering and exiting stocks at just the right price. Use the wrong orders and your trading results can turn into a nightmare.
This stock market orders course will teach you how to use the different type of stock orders available. Along the way, we’ll check to make sure you understand the concepts. Finally, we will show you where to go to further your education.
When you finish this course, you will .
– Understand the differences what a market order is, a limit order is, a stop order is, and a stop limit order is.
– Also understand the pros and cons of each of these types of orders.
– Know the difference of a day order versus a good till cancel order and when to use these type of orders.
– Understand the definition of the bid and ask prices and what the spread is.
– See examples of how to place different types of orders using an online broker’s web page.
Special note: You should check with your broker on the types of orders available – each broker has their own set of rules regarding orders and what they accept.
Let’s get started with the four type of orders (market, limit, stop, and stop limit).
A market order is simply an order that says take action as soon as possible. If you are looking to buy 100 shares of Microsoft at the market, what you are saying is “Buy 100 shares of MSFT at the next available price.” Your broker will typically buy 100 shares of MSFT at the current asking price.
One of the best uses of this type of order is when you want to exit a profitable position at a predetermined profit level.
It might look like this:
A limit order says “only fill this order at my price – or better”.
For instance, a limit order to buy Microsoft can only be filled at a price less than what you specify. If the current price of MSFT is $52.89 and you place a buy limit order at $52.10, then you will only be filled at $52.10 or better.
When I say “or better”, it’s possible that you might actually buy at $52.09 or $52.08 – usually you would be filled at or very near your limit price.
Keep in mind that you might not get your order filled at all! If the stock never gets to your requested price within the time frame you specify, no fill!
Here’s what a limit order looks like:
A stop order is an order that becomes a market order once a certain price is reached. It’s almost the opposite of a limit order. A stop order to buy is placed above the current market price.
This order is useful for protecting from catastrophic losses once you are in a position.
Continuing with our Microsoft example, a stop order to buy might be placed at $52.96 (assuming the current market price is $52.89) and look like this:
A stop limit order acts as expected. It is an order that becomes a limit order once a certain price is reached.
This type of order is most useful for entering a position without overpaying. If a stock is breaking out of a trading range, using this order ensures that you enter as it is moving but limits the price you pay. The only downside is if a stock is moving rapidly, you might not get into the position.
If the current price for Microsoft is $52.89, then a stop limit order to buy at $52.96 with a limit of $53.00 would look like this:
Now you know the different types of orders.
Keep reading on how to combine these with the different time frames and the bid/ask spread. You will have a powerful understanding of what type of orders to use for the best chance of profiting from stock market orders.
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*** Article by Dave Wooding of the Wooding Trading Company. Dave’s site includes useful stock market trading information. Visit https://www.woodingtrading.com for more FREE information about how the stock market works, trading tutorials and stock market education. If you would like to receive information on a regular basis, simply sign up at https://www.woodingtrading.com/stock-market-newsletter. html
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