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The main types of orders used to trade securities

Do you want to buy shares, exchange-traded funds or other securities yourself? Here are the main types of orders you could use to make your trades:

The main types of orders used to trade securities

Market order

When you place this type of order, it will be executed immediately at the best price currently available. However, you must be aware of the security’s liquidity and the difference between the buy and sell prices. Let’s say you want to buy 2,000 preferred shares of ABC Co. You see that the market price is $19. However, there is only one lot available at that price. Since you want to buy 20 lots, a market order will give you the 100 shares at $19 but you don’t know what you will have to pay for the other lots. It could be 2 lots at $19.50, 4 lots at $20, 10 lots at $20.50 and 3 lots at $23. By placing a market order, you will therefore pay $23 for some shares even though the current price is $19. This is probably not what you wanted! In this case, it’s better to place a limit order.

Limit order

This is an order through which you indicate the maximum (minimum) price at which you’re prepared to buy or sell a security.

Stop order

This is a sell order that is only executed if the security drops under the trigger price set by you. A stop order can be used to limit your losses if the price of a security falls sharply. This order can also be used to protect your gains. For example, let’s say you bought shares at $15 and the market price is now $30. You could place a stop order at $28 to preserve most of your gains if the price of the stock falls, but it will also allow you to benefit from an increase in value of the stock if its price does not drop below $28.

Stop-limit order

This is an order that is only executed if the security drops under the trigger price set by you, but the securities will not be sold for lower than the minimum price you’ve decided on. The order will therefore not be executed if it is impossible to sell your securities within the set price range. For example, you place a stop-limit order to sell 100 shares of ABC Co. You indicate that the trigger price is $20 and the limit price is $19.50. Your order will be executed if the share price drops below $20 and it is possible to sell the 100 shares between $19.50 and $20.

Dark order

An order that is not publicly disclosed. When you trade securities, you don’t see these orders. This type of order is especially useful for investors who must sell very large volumes of securities. Let’s say a mutual fund manager decides to liquidate his position in ABC securities. He must sell two million shares. If the order was visible, it could influence the market downward and the manager would have trouble selling his shares for his target price.

All or none order

This is an order that is only executed if the total number of securities indicated in the buy or sell order can be traded. For example, if you issue an all or none order to buy 2,000 shares at $21, the order will only be executed if there are 2,000 shares offered at that price.

Orders for odd lots

A normal lot generally covers 100 shares, but this number may differ according to the type of security and the stock exchange. In general, you can trade odd lots, but investors who have placed orders for normal lots will have priority. Therefore, if you want to buy 50 shares of ABC Co. at $19, investors who place buy orders for normal lots of 100 shares at the same price will have their trade executed before yours. If there are not enough lots available, your order will not be executed.

Short sales

This is an order to sell a security you do not own. The transaction consists of borrowing the security from your dealer, selling it, hoping it will drop in value, buying it back at a lower price and giving it to your dealer, pocketing the profit.

 

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