11. Order Types by xanderhorwitz on GoAnimate
There are many different types of orders you can place in the stock market, and it is important to know the difference between all of them. Let’s start with the two most basic types of orders that we should be aware of. A market order is an order to buy or sell immediately at the best available price. These orders do not guarantee a price, but they do guarantee the order’s immediate execution. Typically, if you are going to buy a stock, then you will pay a price near the posted ask (the price a seller is willing to accept for a security, also known as the offer price). If you are going to sell a stock, you will receive a price near the posted bid (an offer made by an investor to buy a security). One important thing to remember is that the last-traded price is not necessarily the price at which the market order will be executed. In fast moving and volatile markets, the price at which you actually execute (or fill) the trade can deviate from the last-traded price. The price will remain the same only when the bid and ask prices are exactly at the last-traded price. Market orders are popular among individual investors who want to buy or sell a stock without delay. In our program, we will mainly use market orders. Although we won’t know the exact price at which the stock will be bought or sold with these orders, they will likely be close to the bid and ask prices if we are trading in the right markets.
A limit order sets the maximum or minimum price at which you are willing to buy or sell. For example, if you wanted to buy a stock at $50, you could enter a limit order for this amount. This means that you would not pay a penny over $50 for the particular stock. It is still possible, however, that you buy it for less than the $50. Knowing the difference between a limit and a market order is fundamental to individual investing. By knowing what each order does and how each one might affect your trading, we can identify which order suits our needs at the time.