An order is investor’s instruction to the brokerage firm or broker to buy or sell on a trading venue such as bond market, stock market, commodity market, cryptocurrency exchange or financial derivative market on behalf of the investor. Order are typically placed online through the trading platform.
There are diverse, accessible types of orders which let the investor to place limitations on their orders affecting the time and price at which the order can be executed. There is some regular instruction for such orders that mark the investor’s profit and loss on the transaction.
The investor utilizes a brokerage firm or broker to initiate an order. Once the trader has decided to buy or sell a specific security, they place an order from available types. Commonly exchanges trade securities through bid and ask process.
The bid is the maximum price somebody is willing to pay for a security, commodity or stock and ask is the lowermost price someone is willing to sell a security. The bid and ask prices are continually changing, as each bid and ask offer signifies an order.
Most people trade through dealers or brokers which necessitate them to place one of many available types when placing a trade. Trading venue enables diverse order types that offer for some investing direction when scheduling a transaction. Here are some basic order types.
Market order – it is most superficial of all order types. The buy or sell trade is performed instantly at the current market price. The market orders are filled as long as there are enthusiastic buyers and sellers. A market order is served at the best available price at the appropriate time.
Limit order – this type of order gives the trader control over the price at which trade is performed. Limit orders allow the trader to buy a security at no more than specific price or sell a security at no less than a particular price. Limit orders are used when a trader desires to control price rather than the certainty of execution. A buy limit order is executed at a price lower than the market price, while the sell limit order is performed at a price higher than the market price.
Sell stop order – instruct the broker or brokerage firm to sell specific security when the price reaches below the current market price. This type is usually used after major support breakout.
Buy stop order – instruct the broker buy a security when prices reach above the current market price. This order type is used at significant resistance breakout.
Good till cancelled – this type or order remains in effect until they are withdrawn or filled.
The different order types significantly affect the consequence of trade. Each type assists as determination and will be the sensible choice in altered condition.