Different Types of Orders in the Stock Market

There are generally three types of orders that can be used when placing trades. These are market orders, stop orders and limit orders. They are variations on each to which traders should be aware of. These variations are present for security and precision and there are occasions where more then a single order is required.

Market Order – Basic Trade
A market order is where a trader purchases or sells their security at the best market price available. There are two variations on the market order. The Market on Open Order means that the trade must be done during the opening range of trading prices. So the highest price for selling and lowest price for buying.

The Market on Close order is done within minutes of the market closing. This is done at whatever price is available at the time.

Limit Order – Buying at a Lower Price/Selling at a Higher Price
Limit orders involve setting the entry or exit price and then aiming to buy below the limit or sell above it. You can set two conditions on this, one is “Good for A Day” and the other is “Good till Cancelled.” Both of which are self-explanatory. They of course can be changed any time before execution. Reaching these limits/targets is not always possible and sometimes the orders do not go through. Limit orders are very common for online traders.

Stop Orders
Stop orders are used for both opening and closing positions. They are the opposite of Limit Orders. In a limit order the case was that when a price rose to a certain level a sell order was given, in this case a buy signal is given and vice-versa for when the price drops. In the case of a sell stop, it is done so buyers can cut their losses when a share price falls too low. A “Buy stop” is more common and is put into place if the share price is predicted to break through its peak level and head to a new high.

There are down sides and risks associated with both types of stop orders though and should be made with careful scrutiny. Traders should be sure their technical analysis are correct in predicting breakthroughs in share prices in the risk of buying high and selling low.

Traders can also use “guaranteed stops” to protect their position. This is a stop guaranteed by the broker and is ideal if the share takes a sharp sudden turn.

The variations in the three orders require traders to be well aware of their options when trading. Studying the stock and predicting the trend accurately is very important. Stop buys are ideal for securities you expect to break through upwards. Stop sells are for shaky markets that may turn any time. Limit orders are for conservative stocks that are fluctuating.

Arkaitz Arteaga http://www.marketstock.net

Article Source: http://articles.directorygold.com

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