Investing > Stock Order Types Explained

Stock Order Types Explained

Stock orders are a versatile tool for any individual investor, and the various types can bring serious benefits.

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Updated June 01, 2021

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Did you know that going on a vacation can crash your life’s savings?

When embarking on a flight, you don’t know if a popular company you’ve heavily invested in—like Tesla maybe—will suddenly become the biggest short on the market with the likes of Michael Burry getting in on the action.

You also can’t be expected to have one eye on the real-time charts at every moment, especially when out of town relaxing with your loved ones.

This can lose you a serious amount of money. 📉

But, there is a way to secure your investments. Stock orders are pretty much a necessity for individual investors, but they are also very useful and versatile tools. For example, you could set an order before going on a vacation to sell your shares if their price falls below a certain threshold.

This can protect yourself against major losses while away—but, there is a lot more stock orders can do for you. There are so many types out there—each with their own pros and cons.

Ready to learn about them? Let’s dive in! 🚀

What you’ll learn
  • What are Order Types?
  • Why Stock Orders are Important
  • How Do You Place a Stock Order?
  • Basic Stock Order Types
  • Advanced Stock Order Types
  • How Long Can an Order Be Active?
  • Risks of Using Stock Orders
  • Stock Orders When the Market is Closed
  • Trading Stocks Without Orders
  • Conclusion
  • Stock Order Types: FAQs
  • Get Started with a Stock Broker

What are Order Types in Stock Trading? 🎯

When trading stocks, an order is a command to buy or sell certain shares. The most basic order is the so-called market order. This one will simply buy the desired shares at the next available price, or sell at the next available bid as soon as possible—often immediately.

It is important to remember that the last traded price isn’t guaranteed to be the price at which the order is executed—and when it comes to low-volume stock the difference can be quite significant.

To combat this uncertainty, and to set yourself up with a few extra layers of flexibility, you can use a multitude of order types. At their core they all do the same thing—automatically buy or sell shares when executed—but they offer several conditions and limitations you can set.

For example, you can limit how long the order will be in effect. You could also set the price at which you want to start, or stop selling or buying.

There are some even fancier orders like the one cancels other order (OCO). This type sets a little if-then scenario—you can set buy limits for two different stocks and OCO will make sure that only one of the—the first one that reaches the limit—gets executed while the other is canceled.

Why Stock Orders are Important 💡

On one hand, fears of rising inflation are doing a number on the stock market. On the other hand, trading stocks is growing in popularity with investors no longer really fearing a crash—so much so that some see it as a real problem.

These facts really highlight how numerous factors can cause volatility. Of course, not all volatility leads to a downward spiral and you can’t always confidently predict which stocks will rise or fall in the constant ebb and flow.

Stock orders are practical, and even more important—versatile. This is where their true importance comes into play. You can automate much of the trading process and protect yourself from sudden price changes.

You can do this using stock orders both when buying and selling. For example, you set your orders to buy certain stocks, but they keep rising and at a certain point the price becomes just too high—and you are asleep or away. What can you do?

Well, if you set your order to only buy below a certain price point you can breathe easily. You can also see how this applies when selling—you can set the limit that is still above what you paid for when buying those shares.

As we’ve said, while you do technically have to place the orders manually, there is a lot of automation involved. The time your order comes into effect, its conditions that have to be met before any transaction are made, as well as the conditions for stopping. You can also set the timeframe in which you want your orders to continue.

We’ll delve into more detail on all of this as we examine each of the important order types.

Last but not least, stock orders don’t only affect stocks—they can also be used to trade ETFs, as well as options, and most other forms of securities and derivatives.

How Do You Place a Stock Order? 👨‍💻

So, we’ve roughly established what stock orders are, and that they are the best way for an individual investor to buy and sell through a broker, but how in the world do you actually place them?

Well, the process itself is usually quite simple. You log into your brokerage account, pick a market you want to trade on, and go on the trading page itself. There, you should find tabs with various stock order types. 

At this point, you can set the details—the amount of money, or the number of shares for a simple market order, and the other parameters for the more complex types—and place the order. You can even take the spirit of automatization even further and simply use a robo-advisor to manage your portfolio.

Keep in mind that depending on your broker there may be a few extra steps, but these should all simply concern the platform’s interface—and case-by-case info should be readily available from whichever broker you chose.

Another thing worth a mention is that while all brokers should have options for the basic order types, not all brokers have all types available. You shouldn’t find this off-putting though as most investors will never even use the most advanced types.

Basic Stock Order Types 🗂

Okay, but what does a “stop”, or a “limit” mean exactly? Also, what do we mean by more advanced order types? Let’s finally actually dive into the nitty-gritty of each of the order types. We’ll also be using price fluctuations of Apple Inc. (AAPL) and Tesla Inc (TSLA) within one day.

Market Order ✔️

Perhaps you are willing to trust a robot and buy Tesla stock—and bet against Michael Burry himself in the process? You would do this by putting a market order through your broker. A market order is the most basic type of order. 

It is simply an instruction to buy or sell at any chosen time that will usually be executed immediately. If you picked the right time to buy or sell stocks—and are available to make the trade manually—this is the order for you. 

So, if you issued an order to buy Apple stock at 11:00 am, it would likely go through immediately at the price of $126.38 per share. If you did the same with Tesla stock it would be purchased at $586.63 per share. 

Buy market orders
Buy market orders are often used for downtrending stocks. Image by TradingView.

Buy Limit Order ✔️

A buy limit order indicates the maximum price you are willing to pay. For example, the shares you are eying are currently more expensive than what you are willing to pay—hence you are not using the market order—but you believe they will go down soon. Thus, you place a limit and as soon as the prices fall below that limit, the limit order becomes the market order and the transaction is made. 

So, using our examples, you want to buy Tesla stock at the price of $591 or below, and Apple at $126.50, but you are placing your order at 10:05 am when both are above the threshold. Your buy limit order for Apple will turn into a market order at 10:30, two cents under the desired price, and your Tesla order will come through at $588.57 at 10:20.

Limit orders
Limit orders are key for setting the maximum price you want to buy at. Image by TradingView.

Since all buy orders require shares to become available for purchase, it is possible that the order can be delayed for long enough that the prices change. While a drastic change in cost between the order being placed and executed isn’t very likely with high volume stocks, it is still possible to pay more—or, if you are lucky, less—than you expected.

Sell Limit Order ✔️

A sell limit order falls under the broader category often called stop-loss orders. It specifies the minimum price at which you want your shares sold. You would place this type of order instead of the market order if the current price is not what you are looking for but do believe that it will rise.

For example, if you wanted to sell Tesla above $586, and you placed a sell limit order at 01:10 pm, the sell limit order would execute as a market order at 01:30 pm at $586.21. On the other hand, if you were out to sell Apple shares sometimes during the afternoon hoping they would go up to their opening price, the order wouldn’t execute at all—Apple stocks kept falling on this particular day.

Sell Limit Order
Sell limit orders allows you to set clear profit goals. Image by TradingView.

Buy Stop Order ✔️

A buy stop order falls into the category often called stop-loss orders. It is mostly used to limit losses, or protect gains already achieved. The threshold is always set above the current market price. 

The idea is to stop shares from getting too expensive before you get a chance to buy them. It is particularly useful if you are attempting to short stocks. Note however that it is highly unlikely that you will end up buying stocks at exactly the stop price.

Since Tesla was on a long losing streak, and Apple was taking a beating as well on the day we used previously, we will deviate from our usual examples for this one. So, let’s look at Boeing. Perhaps you tried to short their stock expecting they’ll take a dip along with the rest of the market—but that didn’t happen.

buy stop order
A buy stop order lets you purchase a stock before it’s price goes too high. Image by TradingView.

So, you were looking at the charts when they were valued at $230.11. You were still hopeful that your bet would pay off, but a bit concerned. So you set the buy stop order to trigger at $232 and, well—it executed as a market order just a few days later.

Sell Stop Order ✔️

A sell stop order is another of the so-called stop-loss orders. It is always placed below the current market price, and it is used to limit losses if a stock starts plummeting by triggering a market order as soon as the shares reach a certain low. 

If the buy stop order is used as protection against sudden upward shifts, the sell stop order guards against price drops to a certain extent. While the stop orders can be viewed as damage control—and not perfectly reliable damage control at that—they can still play into a broader strategy. 

If things take a wrong turn, it is important to keep a cool head and make the best of a situation. You can use some losses suffered to make taxation more favorable through a practice called tax-loss harvesting.

This order type might be useful if you have invested in Apple and are worried about their performance post-pandemic, especially as their stock has had a few rough periods. So, maybe you are looking at the charts and are getting worried, but aren’t ready to sell just yet.

Sell stop orders
Sell stop orders let you close your positions before your losses become too much. Image by TradingView.

So, you decide that if they fall under $125.40, you don’t want to be a part of it anymore. You set the sell stop order at that price and wait, biting your nails in the meantime. The market closed above this threshold but after hours numbers have dipped below it. 

However, ultimately, the opening price will determine whether the order comes through or not—sell stop orders are not executed after hours, just like every other order type.

Advanced Stock Order Types 🎓

There are, of course, numerous specialty stock order types. These tend to be hybrid orders aimed at meeting specific goals, or mending shortcomings of basic order types. Once again note that not all brokers offer all of these options and that many of them are probably better left for after you get some experience trading stocks.

With the volatility brought upon by meme stocks—and the current fears of inflation—the greater precision and specialization of advanced types might come in really handy. For example, stop limit orders might help you stay the course, and stick with your investment plan—a move recommended by many financial experts. Advanced orders can prove particularly useful if you can’t be actively involved as social media turns some of your investments into meme stocks for a while.

Buy Stop Limit ✔️

Buy stop limit orders are stop orders that convert into buy limit orders when triggered instead of turning into market orders. They have the potential of mitigating the issues with regular buy stop orders.

As we’ve said, the biggest problem with stop orders is the possibility for the purchase to go through at a significantly higher price. A stop limit order prevents this by both setting a price at which to start buying, as well as a price at which to stop.

According to CNN’ predictions, Tesla stocks are likely to rise a lot in the coming years. So, any significant downtrend might present an opportunity to buy them relatively cheaply. However, what if you want to set your order so that you only buy after the stocks start gaining, but not if they jump too much and become too pricey?

Looking at the rest of the subheading you probably guessed right—you could set up a stop limit order. We are again going to take a look at the hypothetical. After the opening, prices peaked at $594.47. But not too long ago they were well above $600 and even above $700.

maximum buy price
Setting the maximum buy price through a stop buy order will help minimize risk. Image by TradingView.

So you could decide that them breaching $600 could be a sign of recovery, but that if they go over $625 it isn’t a good deal anymore. Thus, you would set a stop—indicator to start buying—at $600, and the limit—an indicator to stop buying—at $625.

Sell Stop Limit ✔️

Sell stop order follows the same basic logic. While a sell stop order starts selling as soon as the price falls to a certain point and keeps selling until the specified number of shares are sold, a sell stop limit order will only sell in a certain price bracket. If the current market price of a stock is $10, and you want to start selling if the price dips to $9, but would rather stop selling below $8.50, a sell stop limit order does exactly that.

Since Apple has had a more significant and constant fall during the day we chose, let’s use it as an example. The conceit is similar to what we saw with the sell stop order. Apple’s shares had been falling, and you decide that if they drop below $125, you want out. However, you might also decide you don’t want to get too low a price for them hoping they will rebound and rise again.

Sell stop limits
Sell stop limits make sure you don’t sell your shares below a profitable price. Image by TradingView.

It’s a similar schtick to buy stop limit orders—you set the order to start selling at $125, but also limit it to not sell below—for example—$120. This way if the drop is too sharp, you still won’t sell too many of your shares and will be ready if they soar once more.

After all, no matter their state at the stock market, Apple made excellent returns in the first quarter of 2021.

One Cancels Other Order (OCO) ✔️

The OCO order is rather self-explanatory. You would utilize this type when you want to capitalize on only one of two or several options. Maybe you have a limited budget for investments at any given time or have some other, more complex reason for not wanting to buy multiple stocks at once.

Anyway, the idea is simple, and let’s showcase it by combining our examples from the buy limit order. 

To reiterate—you want to buy Tesla stock at the price of $591 or below, and Apple at $126.50, but you are placing your order at 10:05 am when both are above the threshold. However, Tesla stock reaches the goalpost at 10:20 am 10 minutes before Apple.

Thus, the buy order for Tesla is executed while the one for Apple is canceled.

One Sends Other Order (OSO) ✔️

OSO lets you chain orders together where the placing of the next orders depends on the execution of the previous one. For example, you might see a stock that is on a downward trend, but you are confident it is going to regain value.

Or maybe you spotted some undervalued stocks and want to get in on the action if they just drop a little bit more. Either way, the idea is simple. First, you’d place a limit order to buy desired shares once they drop to a certain price—say $10. Then, you sell those same shares once their price increases to $12.

To achieve this you’d place an OSO order. The first link in the chain is a buy limit order that would, when executed, trigger a sell limit order. This doesn’t mean these would have to be buy-sell-buy-sell sequences. Maybe you’d want to incrementally increase your shares of a certain company.

You could set up an OSO order chain with the stock of a new, promising company. If the prices go up to $12, you buy a certain number of shares and automatically initiate the next order: buy at $15 or above. 

Maybe you’d want to push one more buying order, say, at $17. However, you are a bit anxious if this growth is going to continue so you set a final order in the chain to sell if the prices fall below $15 again.

This way your money is safe-ish. If the stock never continues growing, no orders are executed. If they reach $17 and start dropping—you get to keep most of what you’ve earned. If they stop at any point in between, you get to decide what to do next.

Another possible use for this order type is if you find stocks that are interconnected. This might become especially relevant if the SEC finally approves a BTC ETF—think how the crypto crash of May 2021 has dragged Coinbase stock down with it.

Still, as with anything, you don’t want to make things overly complicated with so many steps you can’t keep track anymore.

All or None (AON) ✔️

AON orders are another interesting category. They ensure you either get all the shares you ordered at your preferred price or the entire transaction is utterly canceled. This order type is particularly useful if you are into trading penny stocks—price gaps measured in cents per share can eat into your money way more if you are buying 1000 shares at a time than if you are buying 10.

When talking about penny stocks, the benefits of AON orders can’t be understated. These stocs carry so much inherent risk that some argue that they are not worth the investment despite the potentially amazing returns. AONs ability to at least mitigate the risk when doing the actual purchase or sale is a most welcome boon.

Another caveat is that AON orders can be tricky to execute with a stock of lower trading volume. For this order to be fulfilled, there has to be a desired number of shares on offer at the right price.

Immediate or Cancel (IOC) ✔️

If all or none orders are concerned with volume, immediate or cancel orders are with time. They make sure shares are bought in a very short timeframe. Anything that would fall outside it is terminated, and if no trades are possible in the given time the order is canceled altogether.

Fill or Kill (FOK) ✔️

Fill or kill order combines AON and IOC. To reiterate, there is a short, specified timeframe in which the order has to be fulfilled, but also, like in AON, and unlike the normal immediate or cancel, the entire order has to be fulfilled. If these conditions aren’t met, the entire transaction is forked.

Take-Profit Order (T/P) ✔️

This type of order is set to execute when the value of securities rises by a certain percentage. For example, using a method like technical analysis you might spot a stock on an upward trajectory and hope and expect it will rise by 10% from its current price.

You can set the take-profit order at that 10% and if the price rises to that point, the order will be executed, and the transaction with it. This order can also be chained with a stop-loss order.

Take-Profit Order
Making percentage-based trades with T/P orders makes tracking your profits easy. Image by TradingView.

This way, if the security falls instead of rising, you’ll still ensure that you don’t take too big of a hit. The underlying problem of this order type is that if you have spotted a true breakout that keeps rising after the 10% mark, you end up losing on potentially far greater gains.

Good ‘Till Cancelled (GTC) ✔️

Good ‘till canceled means exactly that—the order will remain active until you suspend it. The caveat here is that most brokers set a limit of 90 days on most orders. This should, however, give you more than enough time to do all the trades you wanted to.

Day ✔️

This is usually the default option—if you don’t specify the length of the order, it will usually be set to expire at the close of the day. Hence, if your order wasn’t completed within the day and you still want to attempt whichever trade you were after, you’ll have to set it again.

How Long Can an Order Be Active? ⏳

Given the nature of FOKs and IOCs, it is obvious that some order types have a very defined timeframe. Apart from these, you can also select the amount of time other order types have to be executed—or how long they can stay dormant waiting for execution conditions before being canceled.

Risks of Using Stock Orders ⚠️

The most obvious problem with stock orders is that price isn’t guaranteed—but this holds true for stock trading in general. Numerous factors determine stock prices—and nearly all trades happen between investors selling and investors buying at the same time. 

This means that discrepancies in availability and sudden price shifts are always a possibility. This ties into other pitfalls of using stock orders—possibly the chief of these is a false sense of security. 

Placing a stop order can give your money some safety, true—but what happens if you place the sell stop order too high and get rid of your shares only for them to rebound, and possibly rise just after you’ve done away with them at a bad price?

The same holds true when buying. There is always a possibility that a jump in the value of certain stocks is fleeting—and you ended up buying a ton of shares that will soon be more or less worthless.

On the flip side, you might have done your research a bit too well, and still placed the limit too low. Maybe you are selling some shares that you correctly predicted were going to shoot up, but were conservative when placing a take profit order and sold them before they truly spiked up in value.

And this is something that can happen to the best of us. To once again look at Michael Burry, he allegedly sold his GameStop shares shortly before the Reddit craze drove the prices through the roof.

Examples like this really showcase the weird things that sometimes happen with stock values, and how blunders and occurrences like these can turn into long-term losses. GameStop shares are no longer at their $347.51 high but at around $160 in May 2021 are still far from their 2020 prices that were hovering between $5 and $15.

GMEs sudden parabolic rise
GME’s sudden parabolic rise in early 2021. Image by TradingView.

Looking at this graph, let’s see what a stock order mistake would look like. If you set a sell limit order in late January 2021 at $20—which would have been reasonable if you weren’t active on Reddit—you would have missed out on the big spike that came soon after.

What Happens to Stock Orders When the Market is Closed? ⛔️

Simply put, an order placed after hours doesn’t go through until the market is open again. If you are looking to buy and see that the stocks you are after have gone down in value since their closing price you might think placing an order then and there is a good idea. 

However, you have very little ability to predict the various factors that affect the market while it is closed, and very little ability to correct your mistakes as the market is closed during the nighttime when you are, presumably, sleeping.

Trading Stocks Without Orders 🔎

Trading means buying and selling stocks relatively quickly throughout the trading day. Taking that into account, trading without orders would entail sitting in front of your computer very cautiously the whole day long, and setting automatic alerts for all your positions so you know when an important price shift happens.

This way of trading is not unreasonable, especially when you’re not holding dozens of different stocks at once—but it sure is tiring. For one, you’re not protected from sudden drops in price, and you can’t be sure you’ll catch a good price for that stock you want to buy if it dips during your bathroom break.

That’s why it’s advised that you learn how to use orders—not just for your trading performance, but to keep your nerves in one piece too. A peace of mind is crucial for traders, especially when the markets are volatile, fun, and full of potential like today.

Conclusion 🏁

There certainly are a lot of order types. Furthermore, some of them can be hard to distinguish between—when starting out way back in the day we ourselves had trouble wrapping our heads around the difference between stop and limit orders. There is just something unintuitive about the terminology.

However, stock orders are rather inevitable if you have any interest in the stock market. They also aren’t that complicated once you read up a bit on them—something we sincerely hope we’ve made a lot easier through this article. So, stay smart, don’t venture too much of your money on risky trades, and start growing your savings—if you’re on board with the general confidence in stocks growing, this is a great time to start investing in stocks.

Stock Order Types: FAQs

  • What is the Best Stock Order for Buying Stock?

    What the correct order is will heavily depend on the circumstances and your overall goals. Stock orders are a useful tool, but they are just that—a tool. While they do offer some degree of automatization and can let you relax for certain periods, they can never replace your or your research, and you will inevitably have to make judgment calls at certain points.

  • Can you Buy and Sell the Same Stock Repeatedly?

    Retail investors cannot trade the same stock on the same day more than four times in a five-business-day period. This can be avoided by buying at the end of the day and selling at the beginning of the next, or vice-versa. This is called the pattern day trader rule

  • Do Stocks Sell Instantly?

    No, but they can sell nearly instantly. It boils down to trading volume since practically all trades are made between investors that are buying and those that are selling. Essentially, a high volume stock has more people trading it at any given time, thus it sells quicker while low volume stocks are harder to trade. 

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