Friday, August 5, 2011

Stock Orders - Limit Order, Market Order, Stop Loss Order

There are several types of orders that an investor or trader can place with his broker to buy or sell shares in a stock exchange. There are 3 main types of stock orders that I discuss below:

Limit Order 


In this type of order, the investor instructs the broker to buy or sell shares with a limit price. Example - The quote of Google (GOOG) is $ 580. You place a buy order for GOOG with a limit price of $ 575. In this case, the current price is greater than your limit price. Therefore, your order will remain pending until the price falls to $ 575. As soon as the price falls to $ 575 or below, your order will get executed. You can get an execution of your order below your limit price but in no case will it exceed the limit buy price. Same is the case with limit sell orders. In no case the execution price will be below the limit sell price. 

Stock Order Types

Market Order 


A market order is an order to buy shares at the current market price. There is no condition. Example - The price of GOOG is $ 580 and you place a market order. Your order will get executed at the current market price which can be above or below $ 580. Remember that in a market order the execution price could be different from the last quote that you saw.

Stop Loss Order 


This is a type of order that gets activated only when the last traded price (LTP) of the share is reached or crosses a threshold price called as the trigger price. You have to place a stop loss order at a point below the current market price. If the stock falls to this price point, the stop loss order gets executed. If the stock remains unchanged or rises, the stop loss order remains as it is and does not get executed. 

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