The stock market is a complex system that prices assets in real time through the activities of its participants. Essentially, a stock is only worth as much as someone is willing to pay for it, and those values change on a second-by-second basis.
As you dive deeper into the market, you’ll find that the way you place orders to buy or sell stock can make a huge difference in the results generated through your trades. There are several different types of orders to choose from, with the majority being designed to give the investor complete control over how and when trades happen within their portfolios.
Different Types of Stock Orders
Whether you’re day trading or investing, it’s important to understand the different order types, because using them properly will give you a leg up in the market. The orders available to you largely depend on the brokerage you choose to work with or the trading platform you choose to use.
Most Common Types of Stock Orders
No matter what brokerage or trading platform you use, chances are you’ll have at least three different ways to go about buying and selling equities. The three most common order types are:
1. Market Orders
This is the most commonly used order type and the type of order most people think of when buying or selling stock.
When placing a market order to buy stock, you choose the number of shares you want to buy, and your order will be placed immediately at the best available price.
When you sell stock, the same is true. Simply input the number of shares you’d like to sell, and the sale will take place immediately at the current market price.
2. Limit Orders
Limit orders were designed to give the investor more control. These orders only take place if the specified price is achieved.
For example, if you’re looking to sell XYZ stock with a limit order stating you’ll only accept $10 or higher, and the current price is $9.99, the trade will not be executed until the market ticks up and someone agrees to pay the ask price of $10 or more.
- Buy Limit Order. As a buyer, you’ll be looking for a lower price. So, when placing a limit order to buy, you’ll set your bid price at or below the current price of the stock.
- Sell Limit Order. As a seller, you’re interested in getting a higher price for your shares. So, you’ll set up a limit order to sell at the current price or higher.
Limit orders are useful for trading stocks whose price is moving rapidly, ensuring you don’t overpay or short-change yourself if the market price swings a lot in the seconds before you enter your order.
3. Stop Orders
Stop orders, also commonly referred to as stop-loss orders, are orders designed to limit losses should a trade go bad.
When placing stop orders, investors choose a specific price at which they’d like to stop the bleeding. Should the stock fall to that price on bullish trades, or rise to that price on bearish ones, the stop order becomes a market order and the shares are immediately sold or bought to close out the trade.
- Sell-Stop Order. A sell-stop order is placed as a way to limit losses should a bullish trade go bad. Say you buy shares of a stock at $100 per share because you think it will go up. You can set a sell-stop order at $95, ensuring the most you can lose on the trade if you’re wrong is 5%. Once the stop price is reached, the sell-stop order becomes a market order to sell the shares automatically.
- Buy-Stop Order. A buy-stop order is placed as a way to limit losses on a bearish trade, such as a short position. Once the stop price is achieved, shares are purchased to close out the trade.
- Trailing Stop Order. With trailing stop orders, the stop price changes. Instead of being a specific price, it’s set at a specific percentage or dollar amount loss from the highest profit point of the trade. For example, if you purchased a stock at $20 and set a trailing stop order at a loss of $0.50, the trailing stop-loss order would start with a trigger price of $19.50. However, if the stock climbed to $22.00 per share, the trailing stop order’s trigger price would increase to $21.50.
- Stop-Limit Order. Stop-limit orders give the trader even more control. With stop-limit orders, once the stop price is achieved, it creates a limit order rather than a market order. As a limit order, shares will only be purchased or sold at a predetermined price or better.
Other Types of Stock Orders
While the order types above are the most common, they aren’t the only order types available. Depending on the brokerage account or trading platform you use, you may also have access to the following types of more sophisticated orders:
4. Market-if-Touched Order
A market-if-touched order is a conditional order that requires activation. The order is only activated, or turned into a market order, when a predetermined price is reached. While this may sound like a limit order, there is one distinct difference.
Limit orders only sell when the price meets or exceeds the limit price. For example, if you have 10,000 shares you’d like to sell for $10 per share and only have buyers for 2,000 shares at that level before the price dips, the remaining 8,000 shares will not be sold until the price improves.
When it comes to market-if-touched orders, once the activation price is achieved, the order converts to a market order and all shares are either offloaded or purchased at the best available price. In the example above, as soon as the $10 activation price is crossed, you would sell all 10,000 shares, even if only $2,000 of them sold for $10; the rest would continue to sell as the price dropped until all your shares were offloaded and your order was filled.
5. All or None (AON) Order
All or None orders, or AON orders, are orders that can only be executed in their entirety. If for any reason the order can’t be completely filled, it remains in play either until conditions for the entire order to be executed are met or until the order is canceled.
6. Immediate or Cancel (IOC) Order
An immediate or cancel order, or IOC order, is an order to buy or sell stock that must be filled immediately. However, the order doesn’t have to be filled in its entirety. Any portion of the order that is unable to be filled immediately will be canceled upon execution.
7. Fill or Kill (FOK) Order
Fill or kill orders, or FOK orders, are a mix between AON and IOC orders. These are orders that are designed to be executed in their entirety immediately. If the entire order is unable to be filled immediately, the entire order is killed, or canceled.
8. Good ’Til Canceled (GTC) Order
Good ‘til canceled orders, also known as GTC orders, are orders that remain open until they are filled or canceled by the trader. However, most brokers only allow these orders to remain open for a predetermined period of time that varies widely from one brokerage to another. For example, on Robinhood, GTC orders are able to remain open for 90 days.
9. Day Order
As the name suggests, day orders are orders to buy or sell a stock that will be canceled at the end of the trading day. Traditional trading hours are Monday through Friday from 9:30am to 4:00pm Eastern. So, if you were to open a day order on Wednesday at 1:00pm, it would remain active until it was filled or until the markets closed at 4:00pm.
10. Take Profit Order
Take profit orders are a type of limit order designed to close a trade when the investor’s profit goal is met. For example, say you purchased ABC stock at $10 per share and wanted to hold it until you received a 10% profit on the trade.
In this case, you would open a take profit order that would be activated at $11 per share.
As soon as ABC reaches $11 per share, your position would be sold and your profits locked in. On the other hand, if the price of the stock never reaches the $11 mark, the order will never be filled and will remain in effect until canceled.
11. One Cancels Other Orders
A one cancels other order, or OCO order, is a conditional order that can be executed in two ways. The order includes both a stop and a limit price. If the stop price is reached first, the order is executed at that price and the limit order is canceled. Conversely, if the limit price is achieved first, the limit order will be executed and the stop order canceled.
12. One Sends Other Orders
One sends other orders, or OSO orders, have many names. They’re also known as one triggers other (OTO), order sends order, or order triggers other orders. Regardless of the name you use, the order is the same.
OSO orders are a set of conditional orders that don’t become effective until a trigger price is met. Once the trigger price on the first order is met, the following orders in sequence are placed. For example, you may have a buy limit order to buy ABC at $10. Once the buy limit order is executed, it may trigger a take profit order to sell ABC at $11 and a stop-loss order to sell ABC at $9.75, limiting your losses on the trade to $0.25 and offering up to $1 in profits.
13. Tick-Sensitive Orders
A tick is the minimum amount of money a stock can move in either direction. Tick-sensitive orders give traders a way to turn these ticks into actions in their portfolios.
For example, say you expect a stock to shoot up but aren’t willing to risk being wrong. To protect yourself from losses and lock in any profits, you can place a tick-sensitive order to sell your shares with the next down tick.
If the stock makes the most minimal downward move possible, you exit the position immediately. If the stock makes several ticks upward, then ticks down, you will lock in the profits on the first downward tick.
14. At the Opening Orders
Finally, at the opening orders are orders to buy or sell stock that will be executed at the opening bell. As soon as the stock market opens, the orders become market orders and will be filled at the best available price as quickly as possible.
Frequently Asked Questions (FAQs)
As you dive into the various types of orders that can be placed in the market, there are a few questions that may pop into your head. Here are the most frequently asked questions about the different order types available.
Stop-Loss vs. Stop-Limit — What’s the Difference?
Stop-loss and stop-limit orders both offer traders protection, but the protection offered is different.
Stop-loss orders are orders to eliminate positions should things go wrong. However, once the order is triggered, it will be filled, even if the price slips, which could lead to expanded losses.
Stop-limit orders are designed to offer similar protection. However, with a stop-limit order, slippage isn’t allowed. If the price of the stock falls below or rises above the limit placed on the trade, the trade will not be executed. Although this stops traders from immediately accepting larger than expected losses, if the trade continues to go south and the limit order isn’t filled, you can lose even more.
Trailing Stop-Loss vs. Trailing Stop-Limit — What’s the Difference?
Trailing stop-loss and trailing stop-limit orders are both designed to limit losses while locking in gains. The difference between the two has to do with slippage.
For example, let’s say you have 10,000 shares of XYZ stock with a trailing stop at a loss of $0.10 per share.
Shortly after purchasing XYZ, it climbed from $4 per share to $4.45 per share. So on your trailing stop order, the trigger to sell sits at $4.35 per share, locking in a nice $0.35 per share profit.
Then, the stock falls to $4.35. Your trailing stop is executed and 2,000 shares sell at $4.35 before the stock dips to $4.32. What happens next depends on whether your trailing stop is a trailing stop-loss or a trailing stop-limit order.
With a trailing stop-loss, your position would continue to sell until all shares have been liquidated. Some shares might sell at the trigger price of $4.35 and, as the stock slips, some may sell at substantially lower prices.
If you had a trailing stop-limit, as soon as the stock slipped below $4.35, shares would stop being sold, meaning that 2,000 of your shares would be sold at $4.35 each, while the remaining 8,000 would stay put in your portfolio.
Is it Better to Use Market Orders or Limit Orders?
The answer to this question depends on whether you have a sense of urgency in executing the transaction, or if you’re willing to hold off to optimize for the best price.
For example, are you trying to get in on a biotechnology company before the FDA makes a decision to approve or reject a drug? Are you trying to buy Apple before an expected iPhone unveiling? When there’s a sense of urgency in ensuring your order is definitely going to be filled, market orders are the way to go.
On the other hand, if your primary goal in the purchase is to get the optimal price, and you’re willing to wait for that price to come along, limit orders may suit you better. You can often save a few cents per share by placing a limit order, but there are no guarantees. If your limit price never comes along, your order will go unfilled.
Should I Put a Stop-Loss Order on All of My Positions?
This is another question whose answer depends on your trading style and strategies. Theoretically, you could put stop-losses on every position you have, but for most long-term investors, doing so simply isn’t practical.
Long-term investors know the stock market has peaks and valleys, and generally hold their positions through the valleys to ensure they get to enjoy the rise to the peaks. Many buy-and-hold investors forgo stop-loss orders entirely because they aren’t concerned if their stocks decline in the short term — they want to own companies for the long run.
However, there’s no shame in adding a stop-loss to avoid the most painful of declines. For instance, a trailing stop-loss at 15% or higher would stop you from taking losses that are too significant to recover from in case of a major stock market crash, regardless of your investment style.
On the other hand, short-term traders benefit quite a bit from stop-loss orders. Traders make their money by exploiting volatility, a relatively risky practice that takes technical know-how and the proper use of various tools. Even with those tools, it’s common to be wrong about a trade. Traders commonly use stop-loss orders to ensure the pain of a bad trade doesn’t become too much to take.
What Order Types Are Best for Day Traders
Day traders use a wide range of order types to ensure profitability, including most commonly stop and limit orders. The risks of making short-term predictions are significantly increased, so it’s important for traders to ensure that they both enter and exit a trade at the right price and limit the damage when they inevitably have a trade that goes wrong.
By using stop and limit orders to control the exact prices at which they buy and sell shares, day traders are able to limit their exposure to risk while expanding their potential profitability.
The different order types available to you, and your use of them, can help to protect you from losses while making sure you get the best entrance price available when entering a new trade. Taking the time to get to know these order types and taking advantage of them in your trading strategy will prove to be invaluable.