When you are trading different stocks, the order type is an essential part of your strategy. Each order type has specific benefits and drawbacks that can affect how your trade will perform successfully or unsuccessful.Check out Saxo for all your stock order needs.
A market order is a stock purchase or sale for immediate execution at the current market price. It means you are buying or selling right away at whatever price the market offers. The benefit to this type of stock order is speed because you do not have to wait for others’ orders to be completed before yours can go through. There are no guarantees about the price when it finally goes through, making this a risky option. Some traders take advantage of this risk by entering market orders at different prices to take advantage of the spread.
A limit order is placed with the broker to buy or sell a stock at a stated price or better. A buy limit order can be executed at the limit price or lower, and a sell limit order can only execute at the limit price or higher. For example, if you put in a buy limit order for Apple stock at $150, this means you are willing to pay no more than $150 for your shares of Apple regardless of how high the market price rises.
A sell limit order would mean that you are willing to accept no less than $150 per share for your shares of Apple even if it went down below amount. The benefit of this order is that it provides more control over the price. The drawback to this type of stock order is that you may miss your opportunity if the price moves above or below the limit price before it can be executed.
Stop Order (or Stop Loss Order)
A stop order is placed with a broker to buy or sell once security reaches a certain price level. A stop-loss order involves two prices. One is the stop-loss price, when this level has been reached by the underlying security, to buy at the market best available rate (based on exchange rules). The other price is called the trigger price; a stop-loss order becomes a market order once triggered.
For a stop sell order, you would want the stop price below the current market price, and for a stop buy order, you would want it above the current market price. The benefit to this type of stock order is that it protects you if your strategy goes wrong by preventing further loss on your part. On the other hand, there are no guarantees about what will happen when the trigger is reached because then it becomes a stock market or limit order depending on whether you set it as a limit or stop by, for example.
Market If Touched (MIT) Order
A Market If Touched (MIT) order is an order which gets executed only if the market trades at its “if touched” level before expiry. Traders mainly use this order in options trading. A buy MIT order will get executed when the market trades at or above its MIT level, while a sell MIT order will be triggered if the market price falls to or below its MIT level.
A void order is when an order is cancelled before being filled (executed). The reason it gets voided is typical because there was an error on your end when entering the information into your computer or some other technical difficulty occurred that caused you to cancel the stock order that had not yet gone through.
The benefit of this type of stock order is obvious – you do not want any adverse consequences resulting from errors on your part, so this prevents them. Still, if you place a stock order and then get rid of it, you will miss out on what may have been a profitable trade.