Order Types When trading stocks

Market Order When you tell a broker to buy or sell at the current price You don’t specify the price The key is speed of execution The price you end up paying depends upon how actively the stock is traded

Stop Order This instructs your broker to trade once the stock has hit a specified target price, called the “stop price” Typically used to limit potential losses or protect profits by selling when the price seems likely to fall When your stock hits the “stop” price, it becomes a market order – it executes as soon as possible

Limit Order Instructs the broker to buy or sell at a specified price called the “limit price” Never becomes a market order – only executes at the specific price you determined Risk: Your trade might not be executed at all

Stop-Limit Order Instructs the broker to buy or sell when your stock hits the “stop” price, but not to pay more or accept less than the “limit price” Your trade is schedule to occur at a price between the “stop price” and the “limit price” Risk: Your trade might not be executed at all Advantage: Offers you a precise window

Recap - Orders Buying Selling Market Order Buy at the best available price Sell at the best available price Limit Order Buy below or at a certain price Sell above or at a certain price Stop Order Buy at a specified price, which is currently above the market price. Sell at a specified price, which is currently below the market price.

Examples: Company has a great quarter – you don’t yet own the stock Market order – want speed of execution because you think the price will rise Advantage: Your order will most likely get filled Disadvantage: You might pay more than you want to

Examples: Buyer wants to pay $8.00 for a stock, but it is trading currently at $8.25 Limit order for $8.00 – once the stock hits $8.00, your order will be filled at exactly the $8.00 price Advantage: You get the price you want Disadvantage: You order may never be filled

Examples: A stock has traded as high as $10. You only want to buy when it goes higher than $10. Enter a stop limit “buy” order at $10.10 Your order will be filled once the stock trade between $10.00 and $10.10 A stop limit buy order is when you are looking to buy within a specific window of price

Examples: ABC Inc. is trading at $40 Investor has put in a stop-limit order to buy with the stop price at $45 and the limit price at $46. If ABC Inc. moves above $45 stop price, the order is activated and turns into a limit order. As long as the order can be filled under $46, it will execute. If the stock trades above $46, the order will not be filled.

Variations Good Till Canceled (GTC) Day Order The order will be filled until you cancel it Day Order The order is only good until the end of the trading day