Trading Basics: Types of Order

All or None

A limit order either to buy or to sell a security, in which the broker is directed to attempt to fill the entire amount of the order or none of it. An all-or-none order differs from a fill-or-kill order in that, with an all-or-none order, immediate execution is not required. At times, partial fills, can really slow your trading. An order for 500 shares that only gets executed for 479, will be difficult to exit. The market trades in whole lots, which is usually 100 shares. Any order other than whole lots will be difficult to trade.

Day Order

An order which terminates automatically at the end of the business day, if it has not been filled. At times, orders that are sent in during the day will not execute. You do not want to come in the next day and find that you are in a position that you were not aware of. By using Day Order only, you are ensuring that your orders will not carry into times that you may not be around.

Fill-or-Kill

An order that is sent to the floor for immediate execution. If it cannot be filled immediately, it is automatically cancelled. This order is used when you try to take advantage of a special situation and want to cut down your risk. If you are trading a very short term spike in prices, you want complete control over the timing of the execution of your order.

GTC (Good Till Cancelled)

An order either to buy or to sell a security which remains in effect until it is cancelled by the customer or until it is executed by the broker. This order is mainly used for exits rather entries. You can use a GTC order to put in stops, since you want those to carry over till the trade is done. You can also used a GTC order for profit exits. For example, you enter at 12 and want to take profits at 15, you can put in a limit order that is GTC at 15. If the stock reaches 15 while you are away, it will execute automatically.

Market order

A customer order for immediate execution at the best price available when the order reaches the marketplace. This, the most common type of order, has the advantage of nearly always being filled, since no price is specified. This type of order is used for exits mainly. If you use a market order for entry, you do not have control over your entry. If you are in a position and you want out in a hurry, you do not argue about price. By using a market order, you can exit quickly.

Limit order

An order to execute a transaction only at a specified price (the limit) or better. A limit order to buy would be at the limit or lower and a limit order to sell would be at the limit or higher. Limit orders are used by investors who have decided on the price at which they are willing to trade. A limit order is mainly used for entries. It protects you from being executed at a price that is far from your desired entry point. You want to enter at 15, the stock is running. If you do not use a limit order, the stock can run through your entry point and you will be executed much higher. This type of order adds safety.

Stop Order

A market order that trades after a certain level, which you specify, has been reached. It may be time-limited as well, as with a Day Order or Good-Till-Cancelled Order. A stop order guarantees execution but not price. A stop order converts into a market order when the stop price is triggered. This type of order is used for exits. You can use it to exit with profit or exit with loss. For example, if entry is at 15, you can place a stop order at 14.5 to exit in case the stock moves against you.

Stop Limit Order

A specialized order in which a limit order and a stop order are combined. Once the specified stop price has been reached or exceeded, the stop-limit order becomes a limit order. A stop-limit order differs from a stop order, which becomes a market order when the stop price has been reached or exceeded. A stop-limit order to buy must have a stop-limit price above the market price; conversely, a stop-limit order to sell must have a stop-limit price below the security's market price. In response to a stop-limit order specifying "sell 100 GY 70 stop limit," once the stock sells at or below $70, the order becomes a limit order to sell 100 shares at a price of $70. A variation of the stop-limit order specifies a limit price lower than the stop price. This type of order should not be used for exits, as it puts a limit on price. That means that if the stock slides further than the limit price, you will not be exiting your position. That can be devastating if you try to exit a losing position. This order can be used for entries. For example, if you want to enter a stock once it reaches a certain level, you can use a stop limit order to get you in with a limit.

by Shay Horowitz
http://www.bestdaytrader.com

Shay Horowitz has been a successful day trader advisor for over 10 years. Currently he works as an advisor to other traders and has helped hundreds of clients bring in an average 15% profit per trade.