You finally opened your first stock market trading account. You analyzed a long list of stocks and spotted one you want to buy. But wait. First you need to know how to place a trade in the stock market and how to effectively use the different types of market orders you can execute.
Basically there are 5 different types of order you need to know about:
Basically, this is a stop order based on a percentage change in the market price. The stop-loss order is adjusted continually based on fluctuations in the market price, always maintaining the same percentage below (or above) the market price.
A market order is a request to purchase or sell a stock at the current market price. Market orders are pretty much the standard stock purchase order. One thing to keep in mind with a market order is the fact that you don’t control how much you pay for your stock purchase or sale; the market does. This shortcoming can be met with a limit order.
This is an order that executes at a specific price that you set (or better) and can be open for a specific time period. While a limit order will prevent you from buying or selling your stock at a price that you don’t want, if the price is way off base, the order will never execute. It’s important to note that some brokers charge more for limit orders. Why? Simple because no execution means no commission.
This is a market order that is triggered once your stock reaches a specific target price, the stop price. Stop orders may also be called stop-loss orders, because they help investors put constraints on their losses. Any trader, no matter how good their discipline is, should be using stop orders. It will definitely help you act in your own best interest more often than not.
This is identical to the stop order, except for the fact that a limit order is triggered once your stock reaches a specific target price. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.
Usually it is best to always use some type of these market orders or limit orders. The primary benefit of learning and using these different types of stock market orders is that the trader has precise control over when the order should be filled. The downside, as with all limit orders, is that the trade is not guaranteed to be executed if the stock/commodity does not reach the stop price.