Types of Orders
An order is an instruction to a broker to buy or sell a security such as stock on the investor’s behalf. When you practice virtual trading on SprinkleBit, a broker’s role is assumed by the platform instead. Before you start buying and selling stocks, it’s essential to understand the specific features of each order type and know which order would be appropriate for your your objectives.
A Market Order is an order to buy or sell a stock at whatever price is currently available in the market.
Market Orders allow you to take quick advantage of the opportunities that appear in the market. You’re guaranteed to make a trade but not guaranteed the exact price you’re trying to buy or sell at. The price may be quite different from the last price quoted before the order. This is particularly true if you’re trading in fast-moving markets.
A quick but very important note: It is a good practice to avoid executing a market order outside of normal trading hours. For example, if some news story comes out after the market close, the market may react in a very unpredictable way, causing a significant change in price when the market opens the next day. As such, you may pay a price for the stock that is considerably different from what you expected.
A Limit Order is an order to buy or sell a stock at a specific price or better.
When you place a Limit Order, you determine the price to execute a trade, also known as the limit price. A Buy Limit Order allows you to buy a stock at a lower price than the current market price. A Sell Limit Order allows you to sell a stock at a higher price than the current market price.
If you place a Limit Order, you’re not guaranteed to trade the stock. If the stock never reaches the limit price, the trade won’t execute. Yet if the Limit Order gets executed, you’re guaranteed to buy or sell shares at the price you want, or better.
A Stop Order is an order to buy or sell a stock at the current market price once the price of the stock hits the specified price, known as the stop price.
When you place a Stop Order, it means that once the stock reaches the stop price, your Stop Order becomes a Market Order. Buy Stop Orders allow you to improve the chances your potential gains won’t slip away from you, by setting a specific price above the current price that will trigger a purchase of the stock. Sell Stop Orders allow you to limit the damage if the stock takes a sudden dive, by setting a precise price below the current market price that will activate your order to sell the stock.
If you place a Stop Order, you’re not guaranteed to trade the stock. There’s always a chance that the market price never reaches the specified stop price.
A Stop-Limit order is an order to buy or sell a stock that combines the features of a Stop Order and a Limit Order.
When you place a Stop-Limit Order, you set two conditions: a stop price and a price to execute a trade. Once the stock’s price reaches the stop price, your order becomes a Limit Order to be executed at a specified price or better. A Buy Stop-Limit Order is always entered at a price above the current market price. It can only be triggered if the stock’s price breaches the specified level. A Sell Stop-Limit Order is always entered at a price below the current market price. It can only be triggered when the price drops below the specified level.
If you place a Stop-Limit Order, you have precise control over when the order should be filled. However, you’re not guaranteed to trade a stock. A Stop-Limit Order can only be executed at a specified price, or better, and only after a stop price has been reached.
Good For Day and Good Til Canceled Orders
When you place a Limit Order, a Stop Order, or a Stop Limit Order, you also specify the duration of the order.
A Good For Day order (GFD order) is an order valid from the time you submit the order to the end of the day’s trading session. If the order is not filled by the end of the trading day, the order will expire.
A Good Til Canceled order (GTC order) is an order valid until you specifically cancel it, although SprinkleBit has a 90-day limit for orders to stay in effect.