8.5 Type of orders

Market order

If a customer places an order to buy or sell "at the market," they are simply saying that they want the trade done at the best available price when the order reaches the market.

Things to remember about market orders include the following:

• There is no price restriction on a market order.

• It may be filled at any price.

• The customer won't know the price until the order is filled.

• A market order has priority over orders that have a restriction.

• Market orders are filled in the order they are received.

• If no restriction is stated when the order is entered, it is a market order.

• Market orders will normally fill at or very near the current quote, but there is no guarantee of that.

Limit order

• guarantee a price or better,

• are not guaranteed to be filled,

• expire at the end of the trading day if not executed,

• are processed in the order received at a given price level,

Buy limit order

They may get a lower price if available, but they will not pay a penny more than the limit price.

Sell limit order

the minimum price the customer will accept is set. They may get a higher price, but they will not take a penny less than the limit price.

A stop order

• becomes a market order when the current market value of the stock moves to or through the trigger price.

• Stop orders are not entered until triggered. They have no place in the line (no priority) until they are triggered. The time of order entry is based on when they are triggered, not when the stop order was originally placed.

A sell stop

is used to sell a stock if it begins to move down.

• A sell stop will have a trigger that is below the market price when the order is entered.

• Once triggered it becomes a market order to sell.

A buy stop

• is used to buy a stock that is starting to move up.

  • A buy stop will have a trigger that is above the market price when the order is entered.

  • Once triggered it becomes a market order to buy the stock.

  • Buy stops are used by traders that want to buy a stock if it begins to move up rapidly.

Stop orders may also be used to trigger limit orders (instead of market orders).

• A sell stop limit order is entered with a trigger price below the market price.

• A buy stop limit order is entered with a trigger price above the market price.

• The trigger price and the limit price may be different values (and they usually are different).

Time Restrictions

• Day order. A day order is valid until the close of trading on the day it is entered. If the order has not been filled, it is canceled at the close of the day's trading.

• Good-til-canceled (GTC) order. GTC orders are valid until executed or canceled. Broker-dealers will impose limits on how long a GTC order may remain open before being canceled.

Fill Restrictions

• Fill-or-kill (FOK) order. A FOK order is an instruction to fill the entire order immediately or kill (cancel) the order completely.

  • With a FOK order, there can't be a partial execution.

• Immediate-or-cancel (IOC) order. IOC orders are like FOK orders except that a partial execution is acceptable.

  • If only a portion of the order can be filled, it is, and the remaining unexecuted portion is canceled.

• All-or-none (AON) order. AON orders must be executed in their entirety or not at all.

  • AON orders can be day orders or GTC orders.

  • They differ from the FOKs in that they do not have to be filled immediately. They can be entered GTC.