When placing trades, the order type you choose can have a big impact on when, how, and at what price your order gets filled.
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We’ll break down three common order types: market orders, limit orders, and stop orders.
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Stock Order Types: Limit Orders, Market Orders, and Stop Orders
When it comes to investing in the stock market, understanding the different types of stock orders is essential. The three most common types of stock orders are limit orders, market orders, and stop orders. Each order type serves a specific purpose and can help investors maximize their returns while managing their risk.
Firstly, let’s delve into limit orders. A limit order is an instruction given by an investor to buy or sell a stock at a specific price or better. With a buy limit order, the investor sets a maximum price they are willing to pay for a stock. Conversely, with a sell limit order, the investor sets a minimum price at which they are willing to sell their stock. The key advantage of a limit order is that it provides investors with control over the price at which their trade is executed. However, it’s important to note that there is no guarantee that the order will be filled if the market price does not reach the specified limit price.
On the other hand, market orders are orders to buy or sell a stock at the current market price. When placing a market order, the investor is essentially asking to buy the stock at whatever price it is currently trading. Market orders ensure quick execution because they are filled immediately at the prevailing market price. However, the downside of market orders is that the price at which the order is executed may be slightly different from the current displayed price due to market fluctuations. Therefore, market orders carry a higher degree of uncertainty in terms of the execution price.
Lastly, stop orders, also known as stop-loss orders, are designed to limit an investor’s potential loss on a stock. A stop order instructs the brokerage to buy or sell a stock once it reaches a specific price threshold, known as the stop price. This order type is particularly useful for managing risk by automatically triggering a trade to limit potential losses if the stock’s price moves in an unfavorable direction. For example, an investor can set a sell stop order below the current market price to protect against further declines. However, it’s essential to keep in mind that once the stop price is triggered, the order becomes a market order, and the execution price might differ from the stop price due to market conditions.
In conclusion, understanding the different types of stock orders is vital for investors looking to navigate the stock market effectively. Limit orders provide control over the price at which trades are executed, market orders ensure quick execution at the prevailing market price, while stop orders allow investors to manage their risk by triggering trades at specific price thresholds. By leveraging these order types appropriately, investors can optimize their trading strategies while mitigating potential losses.
Quick quiz: What is a market order? Is it A) A trade order based on a specific price indicated by you. B) A trade order that means you want your order filled immediately, at the next available price. Or C) A trade that’s triggered when a stock moves past a specific price point.
Great video. Short concise explanations.
Thank you so much, TD Ameritrade, for explaining this in simple terms. Your videos are the best.
Let’s get it
To my understanding this just proves how much we need an edge as investors because playing the market like everyone else just isn’t good enough. I've been quite unsure about investing in this current market and at the same time I feel it's the best time to get started on the market, what are your thoughts?
When i make a buy order with a stop loss set
Once the order becomes Active, do i own the stock or is the stock held in escrow until the lower limit is hit?
I really don’t get why nobody can explain thus clearly. Thank you!
Damn this might be the most important aspect of trading
This is important.
In a real case an inexperienced trader acted on a tip – something like Gamestop – and placed online an unlimited order for what he thought amounted to 20.000 $. Yet the price skyrocketed over night and instead he ordered stock worth 200.000 $. As his balance didn't cover that the bank sold the stock automatically next morning, yet recovering only 100.000 $. This means our unsuspecting trader was bankrupt.
Nice video
Learned this in a real life situation 3 years ago. Sold AAPL using a Market Order instead of Limit Order, No substitute for experience. Great video!
Hi
I have Shares of Google to sail ,a e-mail stock
Can you place a limit on buy and sell on the same order or can you only put 1
is there anything like a minimum number of shares tradable ?
Still don’t get it cuz I’m trying buy a stock at .093 limit price but what price would my stop price be at ? .09?
I have 3 university degrees. No matter how many times I watch this, no matter how many notes I take, nope, I still don’t get it!
Happy with TD service but this one is a fail!
Excellent video.
Many thanks.
Thank you so much for this video, so many people explain this in such an unnecessarily complicated way and you sir finally made a simple video for a pretty simple concept.
good video, but its really a simple topic and has simple answers. the multiple fast moving objects and pictures, with sound effects is a bit too distracting.
Thanks alot 🙂
When words don't do it for me (reading), videos and figures and images help me immensely. Great video
Effectively informed me of the difference between a trading stop loss $ and %. Thanks.
I still don't really understand Stop-Limit, why not just set a limit order?
Very informative video, thank you.
Isn't limit order and stop-limit the same? So confusing. Thanks for the examples they are very helpful.
Love you so much
I have seen about 30 videos but the concept was not clear………..you have done the job… now I am clear………you are outstanding…. keep it up.
Hello dear I mean is any hot keys for fast buy or sell execute in T o S.
thanks for fast reply and clear explain. If you please explain for me about short buy and sell . I m new trader you think good for me. thank you again.
Hello. how I can make my option like buy and sell very fast executing in T o S.
how to automatic activate trail stop loss at a certain price not at the current market price
I don’t understand the difference between limit order and stop order
Terrible and confusing!
i placed an order at current price becoz i thought it will be filled immediately, but no my order not filled until the price changed n stay that way until my order expired that day… why the hell is that?
Excellent explanation
Excellent video for investors!
im confused about why the condition is price>=x or price<=x, and not just price = x? like if you have put in the condition in the system to "sell when P = 50" wouldnt the system just do that? why would it ever wait till the price gets to, say, 51, to sell?
You could of shown an example of buying it with the limit order option!!!
Trailing stop order makes more sense
problem is that most paper trading platforms are very limited on the order types you can execute…
truth is nobody knows what is going on.
Limit and stop seem the same according to this video. I'm confused.
Concise but effective and in-depth, my favorite
thank you for this tutorial ^^
So trailing stop orders basically set ur stop loss for you so you don't have to while at the same time making you money as the stock goes up or down (depending on the strategy used)?