Buying a stock is it’s not as simple as when we go to the market and we buy a gallon of milk, or when we buy groceries. In the financial market when you give instructions to your brokers you have to specify exaclty what you want to do. In this section we will go over the most common types of orders used when you want to buy and sell stocks;
- A market order is an order to buy or sell a security immediately. This type of order guarantees that the order will be executed but does not guarantee the execution price. It is important for investors to remember that the last-traded price is not necessarily the price at which a market order will be executed.
- A limit order is an order to buy or sell a security at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. Example: An investor wants to purchase shares of APPL stock for no more than $100. The investor could submit a limit order for this amount and this order will only execute if the price of AAPL stock is $100 or lower.
- A stop order also referred to as a stop-loss order is an order to buy or sell a stock once the price of the stock reaches the specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order.