Trade Entry

There are multiple ways to initiate a trade, and each order style is unique. The type of order selected to execute a trade depends on the reason for the trade, the time frame or duration of the order, and the specific strategy employed.
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Order entry is governed by specific rules associated with various order terms. There are multiple ways to initiate a trade, and each order style is unique. The type of order selected to execute a trade depends on the reason for the trade, the time frame or duration of the order, and the specific strategy employed.

Orders may be executed upon entry, triggered by a move in a specific security, or activated by another order. Combinations of different order entry guidelines are possible.

For example, a good-til-canceled limit order has a specific price and time frame criteria that must be met in order to trigger entry. Orders may be conditional, where the order is filled under specific conditions or defined criteria. Orders may also be durational, meaning the order must be filled within a particular time frame, such as during the day of entry or until the order is canceled manually.

The following list describes common order terms, order types, and their potential uses.

Market Order

Execute the order at the best possible price immediately. Market orders are executed in the order received and may be partially executed at different prices. Market orders are executed at the current fair market price and may include a wide range of prices, depending on the security’s liquidity. 

Limit Order

Execute the order at a specific price or better.

For example, if a stock is trading for $55, and an investor wants to own shares at $50, a limit order is entered. If the stock’s price decreases, the limit order will trigger and buy shares at $50 or lower. 

Stop Order

Execute a market order once a security reaches a certain price.

For example, a stop order may be entered at $55 for a stock currently trading at $50. If the stock’s price rises to $55, the stop order becomes a market order for immediate execution. 

Stop-Loss Order

Execute a market order once a security reaches a certain price.

For example, a stop-loss order may be entered at $45 for a stock currently trading at $50. If the stock’s price falls to $45, the stop order becomes a market order for immediate execution. 

Stop-Limit Order

A stop order that becomes a limit order (instead of a market order) once the stop price is reached. Stop-limit orders set the specific price for the stop order to be filled, but in fast-moving markets, stop-limit orders may result in the limit order not being filled.

Trailing Stop-Loss Order

A stop-loss order placed at an initial fixed price difference from the entry and automatically moves up if the security advances but does not move down.

For example, a $5 trailing stop-loss order may be entered for a security trading at $50. The initial stop-loss order is $45. If the security moves to $51, the trailing stop-loss order moves up to $46. If the security drops to $50 or below, the stop-loss order stays at $46. If the security subsequently falls to $46, the stop-loss order is triggered as a market order.

Trailing stop-loss orders may trail by a fixed dollar amount or a fixed percentage amount. Trailing stop-loss orders may be limit orders or market orders. 

Good-til-Canceled Orders (GTC)

The order remains in effect until canceled. GTC orders are typically active for 90 days or less, depending on the broker. 

Day Order

The order remains in effect until the end of regular trading hours.

Extended-Hours

The order is active outside of regular trading hours, either before the market opens (pre-market) or after the market closes (after-hours).

Market on Close

Execute a market order as close as possible to the market closing price. 

OTO (One Triggers Other)

The execution of one order triggers a second order’s entry.

For example, a buy stop order is executed and a trailing-stop loss order automatically triggers based on the execution of the buy stop order. If the initial order is never triggered, the conditional order remains queued. Also known as Order Sends Order (OSO)

OCO (One Cancels Other)

Two orders are entered simultaneously. If one order is executed, the other order is automatically canceled. OCO orders are conditional orders. 

Blast All

Multiple orders are submitted simultaneously, each independent of the other orders. 

Bid/Ask Spread

The bid-ask spread refers to the price difference between the bid price and the ask price for a security. The bid is the price a buyer is willing to pay for a security, while the ask is the price a seller is willing to sell a security.

More liquid securities with higher trading volume will have tighter bid-ask spreads. Conversely, illiquid securities may have wider bid-ask spreads, which could affect pricing of market orders.

Mark Price

The mark price is the midpoint price between the bid price and the ask price. The mark price is not necessarily the price a security may be bought or sold, but indicates the price of a security based on the current bid price and ask price.

Fill or Kill

Immediately execute an entire order or cancel the full order. 

All or None (AON)

Execute the entire order simultaneously or none of the order. 

Partial Fills

Some portion of an order is filled, but not the entire order. The remaining unfilled portion of the order will remain open until it is filled or canceled.

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FAQs

How are limit orders and market orders different?

Limit orders execute the order at a specific price or better. For example, if a stock is trading for $55, and an investor wants to own shares at $50, a limit order is entered to purchase shares at $50. If the stock’s price decreases, the limit order will only trigger and buy shares when the stock is $50 or lower.

Market orders execute the order at the best possible price immediately. Market orders are executed in the order received and may be partially executed at different prices. Market orders are executed at the current fair market price and may include a wide range of prices, depending on the security’s liquidity. 

Should I use market or limit orders?

Market and limit orders accomplish different objectives and may be used for different purposes, depending on the goal of the investor, the time frame in which they want to execute an order, and the price point they want to fill the order. Market orders execute the order at the best possible price immediately, whereas limit orders execute the order at a specific price or better.

How does a limit order work?

Limit orders execute the order at a specific price or better. For example, if a stock is trading for $55, and an investor wants to own shares at $50 or less, a limit order is entered for $50. If the stock’s price decreases, the limit order will only trigger and buy shares when the stock is $50 or lower. Limit orders remain open and active in an exchange’s order book--an electronic listing of buy and sell orders for a security organized by price level--until canceled or filled.

What is the difference between a stop-loss order and a stop-limit order?

Stop-loss orders execute a market order once a security reaches a certain price. For example, a stop-loss order may be entered at $45 for a stock currently trading at $50. If the stock’s price falls to $45, the stop order becomes a market order for immediate execution. 

Stop-limit orders are stop orders that become a limit order (instead of a market order) once the stop price is reached. Stop-limit orders set the specific price for the stop order to be filled, but in fast-moving markets, stop-limit orders may result in the limit order not being filled.

What is the difference between a day order and GTC?

Day orders remain in effect until the end of regular trading hours.Good-til-Canceled Orders (GTC) remain open until canceled. GTC orders are typically active for 90 days or less, depending on the broker. 

What does a large bid-ask spread mean?

The bid-ask spread refers to the price difference between the bid price and the ask price for a security. Large bid-ask spreads occur when the price difference between the bid price and the ask price is relatively wide compared to similar priced assets. Illiquid securities may have larger bid-ask spreads, which could affect pricing of market orders, whereas more liquid securities with higher trading volume will have tighter bid-ask spreads.

What is the difference between fill or kill and immediate or cancel?

Fill or kill orders immediately execute an entire order or cancel the full order. Immediate or cancel orders are very similar, but partial orders may be filled. Any portion of the initial trade that is not filled immediately will be canceled. 

What happens if I cancel a partially filled order?

If an order is partially filled, the remaining open portion of the order may be canceled. However, the portion of the trade that was executed will remain filled and will be reflected in the account. 

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