I’ve mentioned short selling and I’m sure you are familiar with buying or going long a stock but it never hurts to have a refresher and learn more about the markets. So with that in mind, let’s take a look at types of stock market orders.
Types of Stock Market Orders
Buy Order
This is one of the basics. When you want to buy a stock, you put some cash in your stock market account that is placed with a broker and you place an order to buy. If the price of the stock goes up, you will make money and if the price goes down, you will lose money. It’s pretty straightforward here.
Sell Order
Another one of the basics. After you have purchased a stock and you are ready to get rid of it, you would place a sell order with your broker and they would sell the stock on your behalf and deposit the cash from the sell back in your account.
Short Sell and Buy to Cover
One quick variation on the buy and sell is the short sell and the buy to cover. With these two trades you are selling a stock that you don’t own, shorting, and when you are ready to exit the trade, you would buy to cover the trade. The borrowing of the stock to short is handled by your broker as well as when it is time to buy to cover the short.
Timing of Trades
There are two time periods that you can trade, during market hours and after market hours. Pretty simple. But most of the time, orders that go in when the market is open are completed pretty quickly, while orders that are placed during after hours or when the market is closed are filled as needed. There is trading before the market opens and after the market closes but you will need to place a special type of order.
Limit Orders and Stop Orders
After hours trading requires special orders. A limit order is placed at a specific price and is an order to buy or sell a stock at a specific price or better. Limit orders are not guaranteed to execute. It depends on if the stock market’s price reaches the limit price. This type of order is good if you want to specify a price. Stop orders are instructions to buy or sell once a trigger price is hit. This order is also does not guarantee execution and the actual execution price could be far away from the stop price.
Good for the Day and Good Til Canceled
When you place an order with your broker, they will typically ask you to select if you want this order to be good for the day or good til canceled. Good for the day orders will stay live until the market closes, then they will be erased from the books. If you designate your order as good til canceled, it will stay live on the books until it is canceled by the market maker. Each brokerage firm has a different amount of time designated for GTC orders. One broker I am familiar with allows one month for good til canceled orders.
Congrats! Now you know a little more about the different trade types available to you. The SEC (Securities and Exchange Commission) has a great tutorial for investors that covers trade execution. Be sure you learn before you invest.
Do you use different types of orders when you are trading and investing?
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