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3 Order Types: Market, Limit and Stop Orders

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Date Published: Tue, Oct 11, 2022 Updated on: Thu, Feb 2, 2023

What is an order in the stock market?

An order is a specific set of instructions that are directed to a broker, or through a website like Baraka, to purchase or sell a security, on behalf of an investor on the stock exchange. An order is the basic trading unit of a securities market and is usually taken on a trading platform. In order for investors to be able to place certain restrictions on the orders they make, there are different types of orders that are set up that can dictate the time and the limit of the order itself. These limits can also determine whether an investor's order will be completed as it can determine whether the predefined limits are reached, if they are not, the order will not be completed.

The limits are determined by looking at what the investor wants to get out of the order, whether they are looking to buy and sell quickly or hold onto assets to see if the price of them will rise over time. Determining whether an investor should wait or sell is important as this can help to identify how concerned they are with the price that they get within a certain time frame. Different types of orders can be considered to have different goals, some centered around time and others centered around price. The following will look at the order types in the stock market that are commonly used to buy or sell stocks and ETFs (exchange mutual funds). 

What is a Market Order?

As the market is constantly changing, if you are an investor who is looking to get the best current price for the assets you have, you would more than likely be completing a market order. So what is market order in stock trading and how does an investor identify the best one? Market orders sell when the broker, or a website has determined that they are able to sell for the very best price at a certain point, meaning that the investor does not want to wait. This means that a specific price limit is not set on what the broker, or a website can sell or buy the stocks for, it is based on what the best prices are set at over a period of time. 

How Should You Use Market Orders? 

Market orders need to be placed during market hours as they are immediately executed during this time. If you place an order after the market is closed, you run the risk of selling or buying for a higher or lower price. As the primary goal of this type of order is to execute a sale or make a purchase immediately, an investor should be aware that the price may change. This is one of the riskier market orders, as no limits are set on the price, meaning that a broker, or a website will sell or purchase stock at the most valuable price that has been determined at a certain point. 

What are the Advantages of Market Order?

One of the main advantages of market orders is that they are executed immediately. As there are almost always buyers and sellers, an order is usually executed quickly, making for immediate sales or purchases. Market orders offer a quick way for investors to capitalize on investments as the fluid exchange occurs without any price limits determined. This means that an order does not have to reach a certain price in order for the broker, or a website to purchase or sell stock, increasing the rate at which these exchanges are executed. 

What are the Disadvantages of a Market Order?

One of the main disadvantages of market orders is that they are made without having an idea of the price. A market order is set by an investor telling a broker, or a website to get the best possible price at that point in time, with no limits on the price predetermined. The price that stock is sold or purchased for is therefore unknown to the investor, meaning that it is more risky than limit or stop orders. 

What is a Limit Order?

If a market order has no pricing limits, what does a limit order mean in the stock market and how does this order differ from others? A limit order works by determining a set price that an investor would sell or buy at, meaning that the asset would be sold or bought for a specific price, higher or lower. If the price is not met or exceeded, the order will not be filled, meaning that it will not be sold. A limit order is beneficial if you purchase for a low price and are hoping to sell for a higher one, though the timeframe in which this happens cannot be known.  

How Do Limit Orders Work?

Limit orders work by creating specified limits on what stocks can be sold or purchased for. An investor will set a specific price that should be met or exceeded, and only then will the order be filled. If the price that is set out is not met, the order will not be completed. It is important to note that even if a limit order price is reached on stock, this does not guarantee that your order will be filled as there may be orders ahead of yours. This kind of order works on a first come first serve basis, and if others ahead of you sell and the price decreases again below the limit an investor has set, the order will not be filled. Limit orders work well for investors who are looking to purchase stock for a low price and then wait until the stock price rises, selling for a profit. 

What are the Advantages of Limit Orders?

The main advantage of limit orders is that they cannot be purchased or sold for a price lower or higher than what the investor has determined. When looking at what a limit order in the stock market is and how they can be beneficial, it is important to compare them to other kinds of orders. So how are limit orders and market orders different? While market orders hold no limits on price, a limit order ensures that stock has to be sold or purchased for a certain amount, giving a degree of control to the investor. 

What are the Disadvantages of Limit Orders?

The main disadvantage of limit orders is that there is no guarantee that the order will be filled as the set price needs to be met. If you are hoping to sell a specific asset or stock using a limit order, you will give your broker, or a website, a specific price that needs to be met or exceeded, but if no one is willing to purchase for this price, the order will not be filled. This means that you could sit waiting for quite a while, or the stock may never be filled, there is simply no guarantee. 

Along with not having a guarantee when or if the price limit will be met, if the price is met, there is still no guarantee that your stock will be sold. Others who may have set limits before you would be the first to fill their orders and if the price drops once the orders have been filled, you may still be holding onto the stock you have until the next price jump. 

What is a Stop Order?

To protect orders from being lost after a specific price has been met, a stop order is usually used. Stop orders work by trading as a market order once a specific price on the stock has been reached, even if it drops after it has reached this limit. This can help ensure that you are not stuck with stock if there are a lot of people selling at a certain point in time. 

How to Use Stop Orders?

There is a specified trigger price that is set, much like with a limit order, the only difference between stop and limit orders is that if the stock price reaches the specified limit and then drops, a broker, or a website will then sell for the highest price at that point in time, turning it into a market order. This protects investors from sitting with stock for too long but also guarantees that a price has to first be met in order for the order to be filled. Though there is no guarantee on the final price, generally the final order will be filled at a price that is close to the limit that is determined. 

What are the Advantages of Stop Order?

When it comes to stop orders, investors are given a bit more control compared to market orders, as for an order to be filled, a certain limit has to be reached. While it is not guaranteed that the order will be filled for this price, as even if the price rises or drops it would be considered a market order, it does have to reach a certain limit before the order is filled. A stop order takes the advantages of both limit and market orders and uses these elements to create a system that is beneficial both when it comes to price and time

What are the Disadvantages of Stop Order?

The disadvantages of stop orders are similar to market and limit orders. In order for an order to be filled, a certain price has to be reached though there is no guarantee that the price you level your stop order at will be the price that you get. 

What is the Difference Between Market, Limit and Stop Orders?

One of the main differences between the above orders is the goal that they have. While some are set to be sold or purchased in a short amount of time, others are determined according to limits set on price, meaning that if an order does not meet the quotas set out, it will not be purchased or sold. Which order an investor decides to use will depend on what he/she hopes to get out of the transaction. If an investor is hoping for a quick sale, a market order would be the more preferred option but if the investor is set on getting a certain price, a limit order would be a better solution. Investors would need to measure the stock market index and take a number of different factors into account when deciding which order would be best for them


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Your investment can fluctuate, so you may get back less than you invested. Consider each product’s risk(s) before investing. Baraka is not a financial adviser and therefore does not provide financial advice. Our content is informational only.


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