Stock Orders: The various Types and How they Work

Back in the day, stock markets were preserved for the elite. However, thanks to the evolution of technology, many people can now invest in stocks via internet brokers.

When investing in these stocks, you must know when to sell or buy stocks. This means you must understand various stock orders to protect your investments.

You can find some of this lingo used in Investors Hangout and other forums, but don’t float. Instead, Take a look at some of the orders in this industry.

  1. Limit Orders

Limit orders are instructions you give your broker to either sell or buy a stock at a certain price. Therefore, this means the broker will not sell or buy any stock unless you get a particular price. This order allows you to control your investment by setting the price.

However, you want to be careful by doing the math before implementing this order. This involves confirming with your broker to check on the commission. Compare this against market orders to see which is better.

If the difference is huge, then a market order may be the best option since you’ll save on the amount of money you’ll spend on commissions.

  1. Market Orders

If you’re looking for a simple and quick way of completing your order, then a market order is your best bet. This order works by instructing your broker to either sell or a buy a stock as soon as possible at the current market price.

Keep in mind the stock market volatility when issuing these orders. Chances are you’re not going to get the same price when you issued the order but you’ll get a close price.

  1. Trailing Stops

A trailing stop order works to track your profits. It’s similar to a stop loss order only this time, you’ll be protecting your profits. This is how it works.

The trailing stop order works as a market price percentage. After setting this percentage, your broker will monitor your stocks. Once the market price drops by this percentage, the trailing order turns into a market order and the broker will sell the stock.

On the other hand, if the stock rises, the trailing stop order will track it. This will safeguard any extra earnings from your stock.

  1. Stop Loss order

This order instructs your broker to pull the plug on your stock to protect you from serious stock losses. A stop loss order comes into effect once your set price, which is lower than the prevailing market price, becomes active.

By doing so, you prevent your investment from losing more than a certain point. Once the market price hits below your set price, it turns into a market order and the broker will sell the stock.

However, if it levels or rises past this price, the stop loss order remains ineffective. So, you can consider this as insurance against losses.

  1. Good till Canceled

As the name suggests, this order will remain active until you issue an order canceling it. You can use GTC in conjunction with orders for which you can specify a certain time frame. In some instances, you’ll come across brokers who have a time limit on the period they can hold GTC.

In conclusion, you may come across various terms used in place of those listed in this article but the operation remains constant. Furthermore, the most important orders in the stock market are trailing stop orders, stop-loss orders and market orders.

You’ll not use the others as often as these three, but it’s important to know about them.

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