Stock order types: an easy guide to stock market orders

When it comes to buying or selling stocks, you need to use something called a stock order. But how exactly do you execute a stock order, and what are the different stock order types available for investing in the stock market?

In this article, we’ll provide you with all the essential information, starting from the simplest orders like market orders, limit orders, and stop orders, and moving on to more advanced options. Let’s begin by understanding what a stock order is and what its purpose is.

What is a stock order and what is its purpose?

A stock order is a formal request you make to a middleman (also known as a broker) to carry out a stock transaction. Essentially, it’s like asking your broker to buy or sell a specific stock or a group of stocks at a particular price, quantity, or within a specific timeframe.

The main goal of a stock order is to facilitate the buying or selling of stocks, but there are various ways to achieve this. To make this happen, the order needs to include several key pieces of information:

  1. Choose your stock: First, select on the stock you want to trade.
  2. Type of Order: You need to specify whether it’s a buy order (long position) or a sell order (short position).
  3. Number of Shares: Mention the number of shares you’re looking to trade.
  4. Price: Define the price at which you’re comfortable buying or selling, or use the prevailing market price.
  5. Order Execution Method: Specify how you want the order to be executed.
  6. Order Validity: Set the period during which the order remains valid. The maximum validity is usually 90 calendar days, but orders are commonly set to be valid for just one day by default.

How to execute a stock order

Executing stock orders involves various methods, and their priority is determined by factors like price and timing.

  • Buy orders are organised from highest to lowest price.
  • Sell orders, on the other hand, are arranged from lowest to highest price.
  • If orders share the same price, the one placed earlier takes precedence.

Types of orders on the stock market

Market orders

Market orders are the simplest orders. They involve buying shares immediately at the current price. However, the price can change between the moment you click “buy” and when the order is executed.

Advantages of market orders:

✅ Fast and immediate execution.

✅ Priority over other orders.

✅ Suitable for urgent buying or selling.

Risks of market orders:

❌Lack of control over execution price.

❌Risky for volatile assets.

Limit orders

A limit order is a preferable order type that implies a strategic approach. You set a purchase price; the order is only triggered when the price reaches that point.

If there’s a price gap, the order will be executed at the next available price. For instance, if you set a buy limit order at £100 and the stock’s price is £104, but a gap appears at £98.75, it will be bought at that last price (i.e., cheaper than expected).

Advantages of limit orders:

✅ Know the price for buying or selling shares.

✅ Ideal for clearly defined investment strategies.

✅ Helps to control risk.

Risks of limit orders:

❌ Possibility of the limit order not being executed, leaving you without the intended shares.

In essence, executing a stock order involves choosing between a basic market order, which is quick but lacks control, and a strategic limit order, which provides better control but might not always execute. By understanding these order types, you can make more informed decisions when trading stocks.

Stop orders

Stop orders add an extra layer of control to the previously discussed order types. They’re designed to set limits on both potential losses and gains.

With stop orders, you establish specific price levels where you’re willing to accept losses or secure profits. When the stock price reaches these designated levels, the shares are automatically sold using a limit order at the marked price. There are two variations of stop orders: stop-loss and take-profit orders.

Types of stop loss and stop win orders

The stop-loss order closes your position when the stock value hits a particularly low point, limiting your losses. It’s a way to define the price at which you’d like to sell your shares to limit further losses.

The take-profit closes your position when the stock reaches a specified target price. It helps secure gains by locking in profits at a certain level.

Next, a stop-limit order combines a limit order with a stop order. A limit order is placed on the stop price – hence, for a stop-limit order, you need to set both stop and limit prices (which can be the same or different).

Finally, the trailing stop-loss order consists of a percentage (instead of a fixed price when cutting losses). This stop order tracks the stock’s upward movement, allowing you to capture profits while protecting against potential declines.

Advantages of stop orders:

✅ You set predetermined profit or loss levels regardless of how the stock performs.

✅ If the stock price doesn’t reach the specified level, the order won’t be executed.

✅ Stop orders align well with strategic approaches.

Risks of stop orders:

❌ If the order triggers but the stock’s direction immediately changes, there’s a potential opportunity cost.

❌ For take-profit orders, if the stock continues rising after the order executes, you might miss out on further gains.

Types of advanced stock orders

Here are some stock orders used by advanced traders:

Advanced Stock Exchange Orders Types
Pre-Market and After-Hours Orders
Iceberg Orders
VWAP Orders

What is the pre-market limit order?

Professional traders can place orders during pre-market and after-hours trading. This means that the general public does not trade during these sessions. Generally, limit orders are the only types of orders allowed during these sessions – i.e., orders to buy or sell a specific amount of stocks at a specific price.

Typically, all remaining limit orders are cancelled at the end of each session in this case.

What is the iceberg order?

Another tool used by large institutional or professional investors, iceberg orders are large single orders broken down into small limit orders. This means that the market participants do not know the actual order quantity.

These orders are often used to avoid large swings in the market. For example, if a large institutional investor sells a large order, it may cause many retail investors to panic-sell their holdings, causing a crash in the asset’s price.

What is the VWAP?

Although not an order per se, VWAP stands for Volume-Weighted Average Price. This is a technical tool used to indicate a security’s price over time. Also used by large institutional investors, the VWAP is essentially used to ensure that the investor’s trade will not trigger an extreme move in the asset’s price.

For example, an institutional investor, such as a fund, may avoid sending a buy order for a price above the VWAP to avoid inflating the price of the asset artificially. Also, the institutional investor may avoid selling beyond the VWAP not to cause a price crash.

Conditions for order execution

When executing stock orders in the open market (continuous trading), various conditions can be established, including:

  • Immediate-or-cancel order: This order is used to buy or sell stocks that must be executed right away. If any portion of the IOC order cannot be executed instantly, it is cancelled.
  • All-Or-None order: This order must be either executed entirely or not at all (but it remains active until it’s cancelled or it’s executed).
  • Hidden orders: These are used by large investors to mask the volume of the order and protect the asset’s price from volatility.

More aspects to consider:

  • Day Order: Expires at the end of the trading day.
  • Good Till Canceled (GTC): Remains active until executed or manually cancelled.
  • Good Till Day (GTD): Remains active until executed or until a specified date.
  • At-the-Opening (ATO): Executes at the start of the trading session, or it’s cancelled if not executed.
  • At-the-Close (ATC): Executes at the end of the trading session (or near the closing price), or it’s cancelled if not executed.
  • Fill or Kill (FOK): Automatically executed when entered, with the non-executed portion removed.

Summary of stock orders and execution conditions

Most Used OrdersAdvanced OrdersExecution Conditions
Market OrderPre Market and After-Trading OrdersIOC
Limit OrderIceberg OrdersAON
Stop OrderVWAP toolHidden volume
Day Order

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Stock orders summary

In summary, a stock order is a way to tell your broker to make a stock transaction happen on your behalf. You can tailor your order to match your specific buying or selling preferences. By understanding the basics of stock orders and the different options available, you can make more informed decisions when trading in the stock market.


Can I change or cancel an active order?

Yes, you can typically modify or cancel an active order before it’s executed. This allows you to adjust your strategy based on changing market conditions or new information.

What happens if a stop order is triggered but the stock price quickly reverses direction?

If a stop order is triggered and the stock’s direction changes immediately, it’s possible to experience what’s called “slippage.” This occurs when the executed price differs from the expected stop price due to rapid market shifts.

Can I use multiple types of orders for the same stock?

Yes, you can use different types of orders for the same stock based on your trading goals. For instance, you might use market orders for quick trades and limit orders to capture specific price points.

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