Price Orders
Market Orders
A market order is an order to buy or sell a security immediately at the best available price. A market order to buy will be filled at the lowest ask price; a market order to sell will be filled at the highest bid price. A market order is usually filled quickly, and the order is good for that day only (such orders are called day orders).
An investor who buys a security and hopes that the price of the security will rise is said to be bullish.
Example: John places a market order to buy 100 shares of MSFT. The bid-ask spread is 42.13 – 42.15 when the order is executed. John will receive 100 shares at a price of 42.15 plus any commission or markup.
Limit Orders
A limit order is an order to buy or sell a security at a specific price or “better.” Buy limit orders mean buy at a specific price or lower (a lower price is better for a buyer); sell limit orders mean sell at a specific price or higher (a higher price is better for a seller). Buy limit orders are typically used when an investor wants to buy at a lower price than the market price and is thus waiting for the market to come down to the limit price. Sell limit orders are typically used when an investor is hoping to sell at a price above the market price, and so the customer is waiting for the market to come up to the limit price. However, in industry parlance, “execution is not guaranteed,” which means that even if the limit price is reached, the order may not be filled. Like market orders, limit orders are day orders unless marked otherwise.
Example: Peter is long 100 shares of Microsoft. He has already made a nice profit on this stock and is willing to sell his shares if he can get $45 for the shares. The bid-ask spread for MSFT is currently 42.13 – 42.15. Peter places a sell limit order for 100 shares of MSFT @ 45. If the bid price rises to $45, Peter’s shares will be sold at $45 minus any commission or markup.
Stop Orders
The SEC explains stop or