1. Market Order
A market order is an order to buy or sell securities at the market bid or offer price.
Advantages of a market order : a market order has the highest likelihood of being filled and it has the highest speed of execution. However, unlike a limit order, a market order provides no price protection and may fill at a price far lower/higher than the current displayed bid or ask price.
Notes and Remarks:
A market order guarantees a fill or execution, but it does not guarantee the price the order is filled or executed. When the market is moving fast, or for securities with low trading volume, market orders may end up executed with a price higher or lower than you have previously seen in the market.
Orders placed pre-market or during after-hour trading, may be executed at a higher or lower price when the market opens. For U.S. stocks, market orders are only allowed starting at 9:30 AM EST, on each trading day. Before 9:30 AM EST, only limit orders are accepted.
2. Limit Order
A limit order is an order with a specified price. The order will only be executed when the price reached is the specified price or is better than the specified price.
Advantages of a limit order : with a limit order, the range of price is specified by the investor, but the order may not be executed at exactly the price specified. It can be executed at a more favorable price then the specified one. For buy orders, a limit order will only be executed at the specified price or lower. For sell orders, a limit order will be executed at the specified price or higher.
Notes and Remarks:
If the stock price does not reach the specified price, a limit order does not get executed.
For a limit order placed on a stock whose price is moving very swiftly in one direction, uncertain trading time can cause the investor to miss an opportunity. Some unexecuted limit orders can be changed or cancelled. However, the original limit order is still in effect during the change or cancellation process. If the original order is executed during the change or cancellation process, the change or cancellation will not take effect.
3. Stop Order
A stop order is an order with a specified price called stop price.Once the stock price reaches the stop price, the order is executed at market price.The difference between a stop order and a limit order is that stop orders sell when the price is at stop price or lower, or buy when the price is at stop price or higher.
Advantages of a stop order : stop orders help investors stop loss or maintain profit on a certain stock or option.
Notes and Remarks:
Stop orders don’t guarantee success of order placement or order execution.Lack of purchasing power or inadequate positions in an account may prevent the investor from successfully placing a stop order.Orders that are placed may not get executed either.Once the stock price reaches the stop price, a regular market order is triggered.If there is no buyer or seller, the order will automatically expire at the end of the trading day.
Also, when the stock price reaches the stop price, the stop order triggers a regular market order is triggered. However, the triggered market order is not connected to the original stop order.At that point, if the stop order is cancelled, the triggered market order may still be executed.
Frequently asked questions regarding stop orders:
Q1: Can I use a stop order to help protect gains on a stock?For example, I buy a stock at $50 per share, and I want to sell the same stock at $60 per share.Can I place a stop order at $60 per share to achieve this goal?
Answer : No.Stop orders cannot be used to help protect gains. If you place a stop order as described in your question, as long as the current price of that stock is under $60 per share, the order will be executed immediately at market price.
Q2: If that’s the case, what should I do to make sure that the stock I bought at $50 per share is sold when the price is at $60 per share or higher?
Answer : TradeUP currently doesn’t support stop buy orders.You can place a limit order to sell at $60 per share.That will achieve your goal.
Q3: If I don’t have a position in a certain stock, can I still place a stop order for that stock?If so, what is the outcome?
Answer : Yes.In general, stop orders are placed when you have a position in a stock. It helps stop your loss on the stock.If you don’t have a position in a stock and you place a stop order for that stock, the stop order will to some extent help track the stock’s price trend.
For example, assume that ABC stock is currently trading at $35 per share.You think if the ABC stock g $30 per share, it may fall further.You can place a stop order for $30 per share even if you don’t have a position in ABC.The system will place a sell market order when ABC’s stock price drops to $30 per share.
However, you need to understand that if ABC’s stock price goes to $28 per share, the market order is executed right away.
4. Stop Limit Order
Stop limit orders require the investor to specify both a Stop Price and a Limit Price for each order.When the stock price reaches the stop price, a limit order is triggered.The difference between a stop limit order and a stop order is that for a stop limit order, a limit order is triggered when the stock price reaches the stop price.
Advantages of Stop Limit Orders:a stop limit order triggers a limit order when the stop price is reached, rather than triggering a market order. It can help mitigate the risk of a stock being sold at a price much lower than the investor expects.
The difference between a Stop Order and a Stop Limit Order:
A stop order triggers a market order when the stock price reaches the stop price, which guarantees the execution of the order, but does not guarantee at what price the order is executed at.A Stop Limit Order triggers a limit order when the stop price is reached.The limit order will only get executed at a price equal to or better than the limit price set by the investor.So the price is guaranteed to some extent, but there is no guarantee that the order will be executed.
Notes and Remarks :
A stop order is guaranteed to be executed, although the execution price could be much lower than the stop price.
For a stop limit order, if the price of the stock falls rapidly, the triggered limit order runs the risk of never getting executed.This means that the investor’s loss may keeps increasing.
Operating Tips :
If you are buying, the limit price should be higher than the stop price.
If you are selling, the limit price should be lower than the stop price.
Example:You bought 100 shares of XYZ stock at the price of $10 per share.Now you want to limit possible losses to $100. You place a stop limit order on the 100 shares of XYZ stock.You set the stop price at $9.10 and the limit price at $9 per share.If XYZ’s market price reaches $9.10, it will trigger a limit order to sell your 100 shares at a price no lower than $9 per share.
5. Trailing Stop Order (Price Difference and Percentage Difference)
Trailing stop orders don’t specify a definite stop price.Instead, a trailing stop order specifies a price different from the moving market price of a stock as the stop price point.The price difference can either be specified in a dollar amount or as a percentage of the market price.
Advantages of Trailing Stop Orders:
The stop price of a trailing stop order is automatically adjusted. When the market price of a stock is moving in a favorable direction, the stop price is adjusted based on the price difference or percentage different from the market price as specified by the investor.
Note and Remarks:
Trailing stop orders don’t guarantee execution.When the stop price is reached, the system triggers a market order or a limit order.Just like market orders and limit orders, if there is no taker for the offer/bid by the end of the trading day, the order expires automatically.
Also, once a trailing stop order triggers a real market order or limit order, the real order no longer has a connection to the original trailing stop order. Cancelling the original trailing stop order has no impact on the triggered order.
Trailing stop orders allow investors to specify the limit for loss, but not specify the limit for profit.In other words, trailing stop orders allow an investor to maximize the profit opportunity on a stock while setting a limit to an investor’s possible losses.
How do trailing stop orders work?
For a “sell” trailing stop order, if the market price goes up, the stop price rises accordingly.However, when the market price falls, the stop price doesn’t change.When the market price reaches the stop price, a market order is triggered.
For a “buy” trailing stop order, if the market price falls, the stop price drops accordingly.However, when the market price rises, the stop price stays the same.When the market price reaches the stop price a buy market order is triggered.
Example:You purchase 100 shares of XYZ stock at the price of $10 per share. Then you place a trailing stop order on the 100 shares with a trailing stop price difference of $2 per share(you can also specify a percentage as the stop price).If XYZ stock price rises to $12 per share, then your stop price automatically goes to $10 per share.If XYZ stock price rises to $14 per share, your stop price automatically goes to $12 per share.If XYZ stock price starts to fall after reaching $14 per share, when it reaches $12 per share, it triggers a market order for the 100 shares in your trailing stop order.You still have made a $200 profit on the 100 shares of XYZ stock.
6. Order Expiration
(1). Day orders are valid only for the trading day on which you place the order. If an order is not executed by the end of the trading day, it expires automatically.
(2). Permanent orders are valid until they are executed or manually cancelled.