Everything you Need to Know About the 13 Stock Order Types

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Be aware: Not all trading platforms and online brokers offer all these order types. As a result, traders have to check the available order types before investing.

It is good to know that generally orders are filled on a first-come, first-served basis.

Traders must keep in mind that orders can be partly filled, completely executed, or not executed at all.

Contents

  1. Market Order (MKT)
  2. Limit Order (LMT)
  3. Stop-Loss Order
  4. Stop-Limit Order (STPLMT)
  5. Trailing Stop Orders
  6. All or None Order (AON)
  7. Immediate-Or-Cancel Order (IOC)
  8. Fill or Kill Order (FOK)
  9. Day Order
  10. Take Profit Order (Profit Target; T/P Order)
  11. Good ‘Til Cancelled Order (GTC)
  12. Market-if-Touched Order (MIT)
  13. Limit-if-Touched Order (LIT)

Market order (MKT)

A market order is the simplest way to buy or sell stocks. This order type will execute the trade immediately, at the current market price of the stock. Market orders are generally used by traders that are interested in purchasing or selling stocks as fast as possible. One advantage of this order type is that investors can rest assured their trade will be filled. However, it is good to know that the execution price is not necessarily the last traded price, or the one shown by the trading platform, as stock quotations move up and down, especially in volatile markets.

For example, an investor that wants to buy Unilever PLC (ULVR) shares which are currently trading for GBP 4062/share is placing a market buy order. As soon as the order is submitted, it is executed fast, purchasing the shares at their market value at that moment.

Limit order (LMT)

Limit orders are used by traders to buy or sell stocks at a specific price in the future. This type of order will be completed only at the price that the investor has set, or even at a better one. Limit orders help traders make sure that they get an acceptable price for their securities.

On the other hand, you must keep in mind that there is the risk of the order being partly filled, or even not executed at all. You should know that even if the stocks match the limit prices, there is no guarantee that your order will be executed. This is because there can be other orders placed before, thus reducing the available shares at the limit price.

Tip: Limit orders are filled on a first-come, first-served basis.

Four types of limit orders are available for traders:

  • Buy Limit – this order type is aimed at purchasing a share at or below a predetermined price. For example, if a share in HSBC Holdings Plc (HSBA) is currently trading at GBP 439, and a buy limit order is set at GBP 435, the order will be filled when the price is going to reach GBP 435 or below. If the stock will not reach GBP 435, the order will not be filled. Keep in mind that orders can be partly filled, completely executed, or not executed at all.
  • Sell Limit – this order type will sell an asset at or above a pre-set price. A trader that plans on selling Rio Tinto Plc (RIO) at the price of GBP 6300, when its current share price is GBP 6145 will place a sell limit of GBP 6300. Should the stock price reach the limit price of GBP 6300 or higher, the Rio Tinto shares are going to be sold. If the shares are not going to rise to the limit price, the order will not be executed.
  • Buy Stop – this order type, commonly used for managing the risk of a short position, will purchase an instrument at or above a predetermined price, anticipating the current rise in a stock’s price to continue. For example, if a share of Pfizer Inc. (PFE) is currently trading at USD 38 and you want to ensure purchase of the stock at a price of at least USD 40 place a buy stop order at USD 40. If the stock price rises to USD 40, the shares will be bought. If the price doesn’t reach said price, the order will not be executed.
  • Sell Stop – this order type, which traders sometimes use to hedge their risk against long positions, will ensure the sale of a stock at or below a predefined price. A sell stop anticipates that the current share price decline will continue. A trader that wants to sell Moderna Inc. (MRNA) at a price of USD 170 when it’s currently trading at USD 184 can place a sell stop order at USD 170. The order will be executed only in case the stock price reaches USD 170 or lower, at which point the shares will be sold.

Stop-Loss Order

Stop-loss orders are a good choice for traders that want to protect their investments from market fluctuations without actively monitoring stock prices. This order type will sell or buy a stock, depending on the currently open position, when its price reaches a specific value (stop price). After reaching the stop price, a stop-loss order transforms into a market order and is executed immediately. If the stop price is not touched, the order will remain inactive.

For example, an investor that has a long position open on Glencore Plc (GLEN), currently trading at GBP 302 can place a stop-loss sell order at GBP 290 in order to minimise potential risk. In case the stock price will drop to GBP 290 or under, the order is going to be activated, and it will transform into a sell market order that will close the position at the best available price.

On the other hand, an investor that is shorting Glencore Plc (GLEN) at the current price of GBP 302 might choose to use a stop-loss buy order. In this scenario, the trader will place a stop price of GBP 310. As a result, if the share will reach the stop price, the order will be transformed into a buy market order, purchasing back the stock, and thus protecting the trader from further losses due to the price increase.

Stop-Limit Order (STPLMT)

A stop-limit order is a more advanced type of stop-loss order, having two prices that must be set: the stop price that will trigger the order, and the limit price that will limit the execution price. In addition, this order type is different from a stop-loss order because when it is activated, it will transform into a limit order, rather than a market order. As a result, the STPLMT order helps traders protect themselves from a very quick market movement, when prices can fluctuate just enough to trigger the order, but then rebound back quickly.

For example, a trader can create a stop-limit sell order at a stop price of GBP 145, and a limit price of GBP 140, for Vodafone Group Plc (VOD) shares that currently trade at GBP 134. In this case, the order will be activated when the stock reaches GBP 145, and after it will transform into a limit order, not selling Vodafone Group Plc (VOD) stocks if the price is under GBP 140. This will help the investor to secure a profit, selling stocks within desired price limits, rather than at market values.

Consequently, traders that are shorting Vodafone Group Plc (VOD) stocks and wish to protect their bet against a surge in share prices can opt to use a stop-limit buy order. In this scenario, if the stop price is GBP 145, and the limit price is GBP 140, the limit order will be activated when the stock price reaches GBP 145, and it will continue to purchase shares until the price drops to under GBP 140.

Trailing Stop Orders

Trailing stop and stop-limit orders are set to adapt their stop and limit prices in relation to the stock value, without being tethered to a fixed amount. The order activation prices can be set by either percentage or currency units.

A trader purchased a GlaxoSmithKline Plc (GSK) stock for GBP 1300 last month, and its current price is now GBP 1338. The trader can now choose to set a trailing stop order to sell at GBP 10 under market value to protect the profits made from capital gains. In this case, if the share price will reach GBP 1328, the trailing stop order will transform into a market order to sell. On the other hand, if the share price will continue to go up at GBP 1380, the trailing stop order to sell will become active at GBP 1370.

Conversely, if a percentage trailing stop order to sell is placed at 10% under the current value, the order will be activated in case there is a 10% drop from the actual share price. In case the share price will rise, the stop price will also increase, keeping the 10% margin from the last (highest) available valuation.

All or None Order (AON)

An all-or-none order is an order to buy or sell shares that must be either fully executed, or not executed at all. Investors that use this type of order are generally trading penny stocks. Some of the main disadvantages of the AON order are that it can be difficult to close a trade if the share is illiquid or if there is a limit price set on the order. This order type will remain active until is going to be executed or cancelled. AON orders can be programmed to trigger at market price, or at a set limit value.

For example, if a trader puts an AON order to buy 10.000 Barclays Plc (BARC) shares, while only 3.000 are currently available for sale, the transaction is going to remain inactive. This order will be executed only when there will be at least 10.000 Barclays Plc (BARC) shares available for sale.

If an AON order is placed for buying 2.000 Tesco Plc (TSCO) stocks at a limit price of GBP 210 or less, and the stock is currently trading at GBP 222, the transaction is going to remain inactive, even if there are over 2.000 shares available for sale. The order is going to be executed only if the stock value will drop to GBP 210 or less, and if at least 2.000 shares are going to be sold.

Immediate-Or-Cancel Order (IOC)

An Immediate-Or-Cancel order is an order that must be executed in a short time frame, usually in just a few seconds or less. This order type will buy or sell whatever number of shares are available on the market at that time, either at market value or at a limit price. In case the IOC order is not completely filled immediately, the remaining part is going to be cancelled.

For example, if an IOC order to sell 2.000 Lloyds Banking Group Plc (LLOY) shares is set at market value, and at that time there is demand to buy only 1.500, the order will be partly filled, with just 1.500 Lloyds Banking Group Plc (LLOY) shares sold and the remainder of the order will be closed. In addition, if this order would contain a limit price of at least GBP 50, the order would be executed only if the price offered to purchase the shares is going to be GBP 50 or above.

Fill or Kill Order (FOK)

A Fill or Kill order can be best described as a combination between an All-Or-Nothing (AON) order and an Immediate-Or-Cancel (IOC) order. As a result, a FOK transaction must be executed in its entirety (all the number of shares) and within a very narrow time frame (just a few seconds or even less). In case both conditions are not met, the FOK order is cancelled. The transaction can take place at both market value and with a limit price.

For example, if a FOK order to sell 50 Ocado Group Plc (OCDO) shares at market value is placed, there must be existing demand to buy at least 50 shares for the trade to be executed, otherwise, it will be cancelled. In addition, if there is a limit price set at GPB 2200, the transaction going to take place only if there is existing demand to buy them with GBP 2200/share or more.

Day Order

A day order is a condition set on a limit order to execute a trade at a specified price available only during the trading session. If that price is not reached, the order will expire at the end of the day. As a result, traders that want to place the order again will have to set it the following day. You should closely monitor your day orders, as fast market fluctuations can have a negative impact on returns.

For example, an Apple Inc. (AAPL) share’s market value is USD 134, and a trader places a limit buy day order at USD 130. If the share is going to drop to USD 130 or less within the span of a day, the trade is going to be executed. However, if it will not reach USD 130 or below during the trading session, the order will expire.

Take Profit Order (Profit Target; T/P order)

A take profit order will sell a stock when a certain amount of profit is achieved. Traders must choose a specific price that is above (or below, depending on the position) the value of the share when the position was opened. If the stock reaches the desired price, the order will be activated, and the trade will be executed at the stock’s current market value.  This type of order is mainly used by day traders, as it is an easy way to ensure a profit is locked in without constant monitoring. However, investors must keep in mind that it is not good for long-term investments and that if the specified share price is not reached, the order is not going to be executed.

For example, a trader that purchased Walmart Inc. (WMT) shares at USD 125 wants to sell them when the price will reach USD 140. As a result, the set price to trigger the T/P sell order will be USD 140. If the price is going to be reached the investor will secure a profit of USD 15/share.

Good ‘Til Cancelled Order (GTC)

A Good ‘Til Cancelled order is a type of order that will remain active until it is filled or cancelled by the investor. It is generally used by traders that have less time to spend managing their portfolio.  However, many brokers will limit the duration of a trade to 90 days, and some will allow up to 180 days in some circumstances. In addition, traders should be prudent when placing GTC orders as they can be completed during periods with a high volatility, increasing the chances to incur losses. It is good to know that some stock exchanges, such as NASDAQ and NYSE, do not accept GTC orders, because of the aforementioned issues.

For example, an investor that wants to purchase a JP Sports Fashion Plc (JD.) stock for GBP 880 can place a GTC buy order, as the stocks are currently trading for GBP 916. If the stock value will drop to GBP 880 or less, the trade will be executed. On the other hand, if the share prices do not reach the specified level, the order will either expire or it can be cancelled by the trader.

Market-If-Touched Order (MIT)

A market-if-touched order is much alike a limit order, the difference being that they do not offer investors a guaranteed price. This order type allows traders to choose a target price, rather than buying and selling shares at their market value. If the target price is reached, the order will activate and transform into a market order. An advantage of the MIT order is that the transaction can be executed rapidly. However, a serious disadvantage is that traders can only select the target price, when the transaction is activated, but not the actual price paid for the stocks, as their market value can fluctuate.

For example, an investor that wants to buy an UiPath Inc. (PATH) share which is currently trading at USD 80, is placing an MIT buy order with a target price of USD 75. If the share price will drop to USD 75, the order will be activated, becoming a market order to buy. The shares are going to be bought whatever the price is available on the market at the moment.

Limit-If-Touched Order (LIT)

A limit-if-touched order is a combination between a market-if-touched and a limit order. The LIT order has two prices that have to be placed by a trader: the trigger price and the limit price. The trigger price sets the value at which the order will be activated and transformed into a limit order. After this, the order will be executed only if the limit price is reached. The main disadvantage of the LIT order is that if the limit price is not reached, the trade will not be executed, even if the trigger price was reached at some point.

For example, a trader can place a LIT buy order with a trigger price of USD 55 and a limit of USD 50 for an Uber Technologies Inc. (UBER) share which is currently trading at USD 57. In this case, if the share price drops to USD 55 or below (trigger price), the order will transform into a limit buy order at USD 50 (limit price). If the share value is going to reach USD 50 or less, the order will be executed.

 

Reference list:

https://www.investopedia.com/investing/basics-trading-stock-know-your-orders/

https://www.investor.gov/introduction-investing/investing-basics/how-stock-markets-work/types-orders

Bodie, Z., Kane, A. and Marcus, A., 2011. Investments and Portfolio Management, Global Edition. 10th ed.

https://www.schwab.com/resource-center/insights/content/3-order-types-market-limit-and-stop-orders

https://www.thebalance.com/trading-order-types-1031050

https://centerpointsecurities.com/stock-market-order-types/

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