How can stock order types help you make smarter trading decisions? It’s all about using them with precision.
And when it comes to options, there are a lot of different stock order types. But they’re not all created equal or suitable for every strategy.
So before you jump in, it’s crucial that you know what’s right for you and how to use it.
That can help save you a lot of stress over time, which can help you trade with more confidence. Who doesn’t love the sound of that?
So let’s get to it! Here’s how to build your trading foundation with stock order types.
What Is a Stock Order?
A stock order is a set of instructions you send to a brokerage to buy or sell securities.
It used to be that you’d have to call your broker to place your order for you. With the internet, it’s a lot easier these days.
You can place orders by clicking a few buttons with your online trading platform. But, just because you can doesn’t always mean you should. A sure-fire way to blow up your account is to start randomly hitting the buy and sell buttons.
Now, there are several ways to place orders with your broker. With StocksToTrade, you can place your trades using our built-in broker integration
The way you tailor these orders depends on your trading strategy.
Your strategy is important as it’s how you navigate the market and manage your potential profits and losses.
Why Are There Different Stock Order Types?
Stock orders are like hardware tools — there’s a specific purpose behind each type of stock order.
This could mean getting your order filled immediately or later. There are stock orders that will also help you to control the price of your trades.
You can use different stock order types to accommodate market fluctuations. That’s why using technical analysis can be helpful in determining market conditions and making smart trade decisions.
You’ll have to take notice of whether the market’s volatile. Do you see stocks moving around with volume? Pay attention to what the market’s telling you. It can help you with your stock order selection.
Why Are Stock Order Types Important for Trading?
Stock orders can potentially help you manage your risk.
Before I even place a trade, I know exactly where I want to exit. That way I know what I’m risking.
If you’re not managing risk, you’re only pushing buy and sell buttons. That’s not trading, folks.
It’s also not following your trading plan. Doing this is straight-up gambling. If you want to do that, I know a great casino in Atlantic City.
You have to know exactly where you’re getting in the trade and where you’re getting out. You’ve got to plan the trade and trade the plan.
The stock order types you use should fit your criteria.
How to Use a Stock Order
It’s a good idea to use stock orders that fit your bias. Do you prefer to go long (buy) or go short (short selling)?
I say it all the time … You have to know where your stop is before taking any trade. We’ll get to stop orders in a little bit.
Like setting stops, you can use stock orders to set profit targets. And you’ll also want to use stock orders that fit your risk tolerance.
You need to determine whether you’re aggressive, conservative, or risk-averse with your trading.
A great way to discover how to use stock orders is to paper trade. This will help to develop your trading style as well.
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Understand Different Stock Order Types
So far, we’ve generally learned about stock order types. The more you understand stock orders, the more effective you’ll be.
Let’s take a closer look at different stock order types.
This is the most basic of stock order types. Market orders give you the ability to buy or sell at the market’s current best price. It means that your order will fill immediately.
If you’re buying, you’ll get filled near the posted ask. For selling, you’ll fill near the posted bid.
When you want to buy and sell fast, you’ll use these orders. This will ensure your order executes, but it doesn’t guarantee a defined price.
Say momentum is strong … Your order could fill at prices much higher or lower than intended.
I’ve seen things get bad using market orders. You’ll usually end up with terrible fills. This is the downfall of using market orders.
A limit order gives you the ability to buy or sell at a specific price or better. You select the price you’re willing to pay.
Your order will only get filled when it reaches that price level. If it doesn’t, your trade isn’t executed.
Where you place limit orders around these levels depends on your strategy.
It can give you more control in placing orders to buy or sell at certain levels like support and resistance.
Now, there are times when your limit order may not fill at your specified price. You’ll see this when volatility is high.
In these volatile markets, you could see the price blow through your limit orders. This happens because there’s not enough volume to maintain the bid-ask spread. You’ll see this slippage happen from time to time in your trading.
Take a closer look at market and limit orders in this video:
A stop-limit order is a way for traders to potentially gain control of their stop orders.
Two pieces make up stop-limit orders: the stop, which executes the sell order, and the limit price.
Your stop-limit specifies the lowest price per share you are willing to accept from a buyer. So your stop-limit will only trigger if the price decreases to your stop price or below.
When you use a stop-limit, it remains on the books until it executes or you cancel it. You could use stop-limit orders to potentially lock in profits or limit losses.
Keep in mind that stop-limit orders only execute during regular market hours. They expire at the end of the regular market session.
Stop-limits can help mitigate losses, but it’s ultimately up to you to manage your risk.
Buy Limit Order
A buy limit order is an order to buy a stock at or below a specific price. It can control the price you’re willing to accept from a seller.
It will only execute when the ask is at or below your specified price.
Buy limit orders provide traders the ability to enter a position. These orders are useful for buying pullbacks to a moving average. You could also use buy limit orders to buy bounces off support levels.
A lot of traders use buy limit orders to try to get the best price possible.
Sell Limit Order
A sell limit order is the opposite of the buy limit order. The order will only trade your shares at the given price or better.
It can control the price you’re willing to accept from a buyer. The order will only execute when the price reaches your price or exceeds it.
You could use a sell limit order to protect yourself when stocks fail to break resistance levels.
Next on our list of stock order types is the buy stop limit order. This is a buy order that you set above the current market price. If the price action reaches that price, your order will fill.
If the price doesn’t reach your buy stop, your order won’t fill. These orders are most used when price indicates upward momentum.
It’s important to note that when your buy stop order triggers the order becomes a buy limit order.
Sell stop-limit orders are the opposite of buy stop-limit orders. This is a limit order to sell your shares if the price action falls through your stop price.
This order is like a sell-limit order.
Buy Stop Order
A buy stop order is an order to buy shares when the stock reaches a predetermined price. When price action hits that level, it’ll fill at the next available price.
Shorts might use buy stops to help protect themselves during a short squeeze or when their short positions aren’t covered.
Buy stop orders are similar to buy stop-limit orders.
Sell Stop Order
Sell stop orders sell a stock at a price below the current market price. This order will execute when the stock hits the price you’ve specified.
At that time, it becomes a market order to sell. It’s an order that can potentially protect profits and prevent excessive losses.
This is true when price action shows downward momentum. This order is often referred to as a stop-loss order.
We can’t talk about stock order types without this one … A stop loss is any predefined stop.
You can use stop-loss orders to buy or sell a stock once it’s reached a predetermined price. Traders use these orders to help prevent losses.
It’s no secret that traders tend to fall in love with certain stocks, even those that don’t play out as expected. They often hold and hope the trade will turn back in their favor.
Others can panic once the price action turns against them.
Having a stop-loss order can help remove emotional influences from trading decisions.
Your stop loss can be some of the stop orders we talked about, or you could also use a mental stop. That can be harder for newer traders. But with experience and discipline, mental stops can be easier to use over time.
Like I said earlier, you have to know your stop and stick to it. Learn more in this video on stop-loss orders:
An immediate-or-cancel (IOC) is an order that can represent a market or limit order. These orders are typically filled in seconds.
If your order doesn’t fill any shares immediately, your order cancels completely.
The all-or-none order allows you to place specifications on your buy and sell orders. Using AON orders, you instruct your brokerage to fulfill the order in its entirety or not at all.
Here’s how the AON order works … Say, you want to buy 1,000 shares. If those 1,000 shares aren’t available, your order cancels.
There are many factors at play with AON orders. In hot markets with lots of volume, you likely won’t have issues with your orders getting executed.
But it’s not the same with illiquid stocks trading on low volume. Not using an all-or-none order, you could end up with partial fills using bigger share size.
With AON orders, you provide instructions about when your order fills. This has an effect on how long your order is active. It’s like it says — all or none of your order.
A fill-or-kill order executes your entire order size in seconds. This stock order type combines the all-or-none and immediate-or-cancel orders.
With this order, you need to have both of these conditions met or the order cancels.
Good ‘Til Canceled (GTC)
A good ‘til canceled order is like it sounds. It’s an order to buy or sell that remains open until you cancel it.
If this sounds kinda casual, that’s because it kinda is. You’ll find this order on most trading platforms.
Some swing traders favor this order. GTC orders can be a good option if you’re not able to actively watch stock prices. But I wouldn’t use this stock order type on highly volatile stocks.
Now, some brokers may place restrictions on how long the order stays open. Sometimes this is about 90 days.
You can also use GTC orders as stop orders. In this sense, you’ll place orders above and below market prices to potentially help you maximize profits and limit losses.
It’s also an order that could give you more freedom to do other things like technical and fundamental analysis.
A day order is a stock order type that limits your order to the duration of the trading day.
You’ll find this order type on most trading platforms for intraday trading.
A day order is often used both as market and limit orders. If you opt to use a limit order, day orders remain open until they’re filled.
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In our list of stock order types, here we are with take-profit orders, aka profit targets.
Oddly enough, take-profit orders are intended to close … when you’re ready to take profits, whether you’re long or short biased. If you’re long, you’ll enter a sell order, and if you’re short, you’ll buy to cover your position.
This order is always connected to open orders.
Enjoy those profits — you earned them!
What Are the Most Common Stock Order Types?
The most common orders are market, limit, and stop-loss orders. We talked about these order types earlier in this article.
But traders ask me this all the time: “Can I buy and sell the same stock repeatedly?”
The short answer to this has two parts.
First, there’s no limit on how many times you can buy and sell the same stock. And second, the number of times you can depends on your buying power and if you’re under the pattern day trader (PDT) rule.
Learn more about the PDT rule in this video:
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Conclusion on Stock Order Types
Over the course of this article, we talked about a lot of different order types.
Study and get to know them all. Not only can provide you with more trading options, but they can also help you understand how other traders approach the market. And that’s equally important.
There’s so much to learn about trading … It’s wise to find what you love about it and keep learning.
That’s one reason we have so many resources, like our YouTube channel, the SteadyTrade podcast, and even our no-cost weekly watchlist.
We dive deep to teach trading fundamentals — like stock order types.
Ready to take your trading education to the next level? Check out our SteadyTeam trading mentorship. Our dedicated community is all about smart trading with a great chat room, twice-daily webinars, educational videos, and much more. Join us today!
What types of stock orders are your favorite to use? Which stock orders fit with your strategy? Please leave a comment below. I’d love to know what you think.