- Types of Orders
- Market Order
- Limit Order
- Options Trading Market Orders
- Stop Loss Order
- Stop Market Order
- Stop Limit Order
- What Is Market Order?
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- Continue Reading...
- Buying Straddles into Earnings
- Writing Puts to Purchase Stocks
- What are Binary Options and How to Trade Them?
- Investing in Growth Stocks using LEAPSÂ® options
- Effect of Dividends on Option Pricing
- Bull Call Spread: An Alternative to the Covered Call
- Dividend Capture using Covered Calls
- Leverage using Calls, Not Margin Calls
- Day Trading using Options
- What is the Put Call Ratio and How to Use It
- Understanding Put-Call Parity
- Limit Order
- Understanding the Greeks
- Valuing Common Stock using Discounted Cash Flow Analysis
Home / Stock Option Basics
Types of Orders
Online brokerages provide many types of orders to cater to the various needs of the investors.
The common types of orders available are market orders, limit orders and stop orders.
With market orders, you are instructing your broker to buy or sell the options at the current market price. If you are buying, you will be paying the asking price.
If selling, you will be selling at the bid price. The advantage of using market orders is that you will fill your order fast (often instantly) but the disadvantage is that you will usually end up paying slightly more, especially when the order is large and the trading volume thin.
With limit orders, you will specify the price you wish to transact.
If you are buying, you are instructing your broker to buy at no higher than the specified price. If selling, you are telling him to sell at no less than your stated price.
Options Trading Market Orders
The advantage of using limit orders is that you are in full control of the price at which you buy or sell your options. The disadvantage is that filling the order will take some time, or the entire order may not get filled at all because the underlying stock price has moved way beyond your desired price.
Stop Loss Order
Stop loss orders are orders that only gets executed when the market price of the underlying stock reaches a specified price.
They are used to reduce losses when the underlying asset price moves sharply against the investor.
Stop Market Order
A stop market order, or simply stop order, is a market order that only executes when the underlying stock price trades at or through a designated price. Buy stops, designed to limit losses on short positions, are placed above current market price.
Sell stops are used to protect long positions and are placed below current market price.
While the stop market order guarantees execution, the actual transacted price maybe slightly lower or higher than desired, especially when the underlying price movement is very volatile.
Stop Limit Order
A stop limit order is a limit order that gets activated only when the underlying stock price trades at or through a specifed price.
What Is Market Order?
While a stop limit order provides complete control over the transaction price, it may not get executed if the underlying price moves too quickly and the limit price is never reached.
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