Order Types Used by Traders and Investors – Market Order – Limit Orders – Stop Orders
These classes are all based on the book Trading and Pricing Financial Derivatives, available on Amazon at this link. https://amzn.to/2WIoAL0
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If you are buying or selling financial products, when you use a market order, you are essentially just requesting the transaction to go through at the next available price.
Limit orders are another order type but they limit the price at which the stock is bought or sold. You can place a limit order so that it will buy below a set price or sell above a set price. The main downside of a limit order is that the trade may not go through if the price never gets to the limit you have set. You therefore need to keep on top of your limit orders to ensure it does get bought or sold.
The stop order orders the purchase or sale of a stock once it’s reached a certain price.
Buy stop orders are put above the current market price and a sell stop order below the current price, with the potential benefit of reducing your loss or protecting your profits.
You can also use a stop limit order, which releases a limit order once the stop price has been triggered.
