Different types of stock orders and when to use them

Different types of stock orders and when to use them

Stock trading is the act of buying and selling shares in publicly traded companies with the aim of making a profit. In Hong Kong, the stock market is known as the Hong Kong Stock Exchange (HKEX) and is one of the largest exchanges in Asia. It lists over 2,000 companies from Hong Kong and other countries, including mainland China, with a market capitalisation of around HKD 42 trillion (as of December 2021). The HKEX offers a range of investment products, including stocks, exchange-traded funds (ETFs), and derivatives such as futures and options.

If you are interested in buying stocks, you must surely know what stock orders are and how you can find them on your platform. This article aims to demystify some of the orders you may have seen on your trading terminal and may not understand. Read on to learn more.

If you would like to start trading stocks right away, you can visit your broker for information on the stocks available for trading. You can also likely create a free demo account to learn more about how you can execute different orders in your preferred market.

What is a stock order?

A stock order is an instruction to buy or sell a specific stock at a specific price. It is a request made by an investor or trader to their broker or brokerage firm to execute a transaction on their behalf. A stock order typically includes details such as the type of order, the stock symbol, the quantity of shares, and the price at which the investor wishes to buy or sell the shares.

Different types of stock orders

There are many different types of stock orders, from market and limit orders to stop and stop-limit orders. There are also more complex conditional orders such as the All or None order and the Fill or Kill order. Below, we examine them in more depth.

Market order

A market order is a type of stock order that instructs a broker to buy or sell a stock at the best available price in the market. This means that the order will be executed immediately at the current market price, regardless of whether the price is higher or lower than the investor’s desired price.

Traders generally use market orders when the speed of execution is more important than the price at which the order is executed.

Limit order

A limit order is a type of stock order that instructs a broker to buy or sell a stock at a specific price or better. When placing a limit order to buy, the investor sets the maximum price they are willing to pay for the stock, while for a limit order to sell, the investor sets the minimum price they are willing to accept.

The order will only be executed if the market price reaches the specified limit price or better.

Stop order

A stop order, also known as a stop-loss order, is an instruction given by an investor to a broker to buy or sell a security once it reaches a certain price, known as the stop price. A stop order is used to limit an investor’s loss or to lock in a profit on a security that they already own.

When the stock reaches the stop price, the stop order is triggered, and the broker will execute the trade at the next available price, which may be different from the stop price.

Stop-limit order

A stop-limit order is an order placed with a broker that combines the features of a stop order and a limit order. It involves setting a stop price at which the order will become active, and a limit price at which the order will be executed. Once the stop price is reached, the order becomes a limit order that will only be executed at the specified limit price or better.

Traders generally use the stop-limit order to control the maximum price they will pay for a stock, while also ensuring that the order will only be filled if the stock reaches a certain price level.

Trailing stop order

A trailing stop order is a type of order used in stock trading that is designed to protect profits while minimising losses. It is an order to buy or sell a stock when it reaches a certain price level, but unlike a regular stop order, the price level is set at a certain percentage or dollar amount below the current market price for a sell order or above the current market price for a buy order.

As the market price moves in favour of the trade, the stop price also moves in the same direction by the percentage or dollar amount specified, thus “trailing” the market price. Traders often use trailing stop orders in trend following strategies where the trader seeks to capture as much profit as possible while minimising the risk of losses.

All or None order

An All or None (AON) order is a type of stock order that specifies that the entire order should be filled completely or not at all. In other words, if the entire order cannot be executed at once, then no part of it will be executed. This type of order is often used when an investor wants to buy or sell many shares at a specific price but doesn’t want the order to be filled partially.

AON orders can be useful for minimising risk and ensuring that the investor gets the desired price for their shares. However, it can also lead to missed opportunities if the market moves against the desired price.

Fill or Kill order

A Fill or Kill (FOK) order is a type of stock order where the investor instructs the broker to either immediately execute the entire order or cancel it altogether. The FOK order is often used to ensure that the investor’s order is filled in its entirety, without any partial executions. If the order cannot be filled immediately in its entirety, it is cancelled.

The goal of an FOK order is to minimise the possibility of partial executions and ensure that the entire order is filled at the desired price.

Placing stock orders: when and where

In stock trading, you can place a stock order when you want to trade a stock, either to buy or sell it. This can be done during trading hours when the stock market is open. The specific time that you place the order depends on your trading strategy and market conditions.

For example, you may place a market order during trading hours if you want to buy or sell a stock at the current market price, or you may place a limit order outside of trading hours to automatically execute the order when the market opens.

When it comes to practical execution, you can place a stock order on the trading platform by selecting the specific stock you want to trade and then choosing the type of order you want to place, such as a market order, limit order, or stop order. The exact location of where to place a stock order may vary by trading platform, but you can typically find the option to do so within the order entry section of the platform.

The bottom line

Knowing how to use stock orders is crucial, because it helps traders execute trades more efficiently and with greater precision. Different types of orders are suited for different trading strategies, market conditions, and risk management goals. By understanding how to use various stock orders, traders can minimise slippage, reduce costs, and better control the execution of their trades. This can lead to better trading outcomes, which can potentially lead to improved overall performance in the stock market.

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Daniel Radcliffe

About the Author: Daniel Radcliffe

As a marketing strategist and dedicated writer for Business Wave, Daniel Radcliffe devotes his skills to researching, developing and positioning content related to some of today’s most cutting-edge technologies. He draws on nearly a decade of marketing, education and technical writing experience to distill complex topics into highly practical and valuable resources for today’s IT leaders.

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