Series 7: 17.4.2.2.1. Price Orders

17.4.2.2.1. Price Orders

Market orders. Market orders are the most common and easiest orders to place. When an investor places a market order, he is requesting that the stock be bought at the best available price. No specific price is identified. A seller will get the highest bid, and a buyer will get the lowest offer at the time the order is executed, but these may not always be the same bids and offers that were first quoted to the customer. The order ticket for a market order will include the abbreviation MKT. Market orders are typically filled immediately.

Market orders may not always be the best choice for thinly traded securities, where the difference between the quoted prices for bids and offers can be large.

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.

Not held market orders are orders in which the traders hold the order until they believe they can get the best price. A not held market order is also called a discretionary order or a working order.

Limit orders. A limit order is an order to buy or sell at a specified price (the limit) or better. The buy limit order states a maximum price at which an investor is willing to buy a specific security. The buy limit order will execute if the stock can be bought at the specified price or lower. The sell limit order states the minimum price at which the investor is willing to sell a specific security. The sell limit order will execute if the stock can be sold at the specified price or higher. If a broker can get a better price than the limit price, the trade will be executed at the better price rather than the limit price.

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