Trade Orders

The many forms of orders that may be placed on trading exchanges for financial assets such as stocks or futures contracts are referred to as trade orders. Buyers and sellers with matching order requirements are matched via order-driven trading systems. All in all, a purchaser with a purchase cost coordinating with the sell cost of a vender will bring about an executed exchange. While putting in a market request, the request is filled at the current market cost of the security and will ordinarily be executed right away.

The buyer and seller may be certain that the price of the security at the time of the transaction will be close to the advertised price at the time the order was placed because of the speed with which orders are executed. The many forms of trade orders enable traders to increase the variety and specificity of their deals. These are the most common types:

Market Order – The most common and basic of all trading orders is the market order. Simply said, a market order executes the trader’s requested order volume at the best available price. This gives the trader the most liquidity but the least price control. A buy market order for 5 shares of firm A, for example, will acquire 5 shares at the order book’s current lowest ask price.

Limit Order – A limit order is a purchase or sale of shares at a predetermined market price. While purchasing a stock, this sort of order is made at or below the current market price, and when selling, it is put at or above a particular price. The order will not be fulfilled until the stock’s market price reaches the stated level. The best available price is the “market” for all limit orders in an order book.

The market is defined as the lowest sale price (ask) and the highest buy price (bid). Prices that are lower (higher ask, lower bid) are referred to as “behind the market.” In the market, new orders that are better than these prices are called. New orders with prices considerably higher than these are marketable.

Stop-loss Order – An investor who uses a stop order only wants to purchase or sell a stock when the market price reaches a specified level. When that price is achieved, the order becomes a market order, which means it will be executed at the next available market price. In contrast to the limit order approach, which aims to maximize profits, this form of order aims to minimize losses. A stop-loss order is often used to close out an existing trading position, but it may also be used to join the market if the price rises to a certain level.

Trade orders, interestingly enough, may be used to build sophisticated trading systems. These are also used in combination with stock options such as call and put. Investors have the option of working directly with financial advisers to submit trading orders. The manner in which the order is placed is determined by the investor’s connection with the advisor.

Discretionary vs. non-discretionary, and solicited vs. non-solicited are the two most prevalent types. The investor grants the adviser discretionary permission to issue investment trade orders on their behalf in a discretionary relationship. As long as it is in the client’s best interests and objectives, the adviser can place any sort of trading order, at any time, for any securities. Conversely, a non-discretionary relationship requires the adviser to get approval from the investor before each trade order is submitted. In this case, the adviser simply makes investment trade recommendations and the final decision is up to the investor.

Information Sources:

  1. study.com
  2. investopedia.com