Stock Order Types- Limit Orders, Market Orders, Stop Orders

The vast majority of retail investor accounts lose money when trading CFDs . You should consider whether you can afford to take the high risk of losing your money.

A stock order is an instruction to buy or sell on the stock market. The instruction can be straightforward or complex, depending on the situation or the nature of the investment. Understanding the different types of stock orders that you can place is the key to building a solid portfolio.

Here are the three main types of stock orders:

Limit Orders- if you want to buy or sell stocks only at a specific price, then you should choose limit orders. If you are seeking to buy a stock, you need to specify a lower limit and if you want to sell, you need to specify a higher limit. It may take time to trigger the limit order, whether it’s a week, a month or even a year. If everything works out according to your plan, you can buy a stock at or below your desired price. Because limit orders allow you to exceed the specified prices, it is possible to buy below the market price or sell above the market price. It is important that you don’t lose the window, so you won’t miss out on trading opportunities.

Market Orders- with market orders, you can buy and sell stocks at the next available price immediately. Market orders are fast and efficient, but that doesn’t guarantee that your fill price will be favourable. The price that you get may not be the same with the price on the screen when you hit the Buy or Sell button. Because the market could fluctuate rapidly, it is more likely that it’s close to your target price and this called slippage. When choosing market orders, you should be careful when dealing with thinly traded stocks with wide difference between ask and bid prices. These stocks are prone to bigger slippage. If the market is highly volatile, asks and bids could also fluctuate wildly.

Stop Orders- if you choose stop orders, you buy or sell stocks when a specified price is reached. It may sound similar to limit orders. Limit orders are visible to the market and you can instruct the brokerage firm to fill buy or sell orders at specific prices. On the other hand, a buy stop order is defined as an order which ‘instructs a broker to purchase a security when it reaches a pre-specified price. Once the price hits that level, the buy stop becomes either a limit or a market order, fillable at the next available price.’

Contact CFI Financial

To learn more about investing in today’s global markets, contact CFI Financial today and speak with someone who can answer any questions that you might have.

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