Are you using trading orders? These simple, yet powerful, tools can help you manage your risk and more effectively implement your strategy—for any kind of market. Show
Putting trading orders to useWhen you are making a trade, you will be prompted to select an order type after selecting a symbol, action (buy, sell, etc.), and quantity. Market orders are a commonly used order when you want to immediately buy or sell a security. A limit order might be used when you want to buy or sell at a specific price. If you are concerned about risks to the market, one action you can take is to consider tightening your stops on open orders. This strategy involves adjusting stop orders so that they are closer to the current market price (in order to potentially reduce the impact of a large, adverse price swing). If risks dissipate, you can adjust and loosen up your stops. Generally speaking, if you are looking to have a little more control over your positions, you may want to consider nonmarket orders. Limit orders are a primary alternative and can be particularly useful when market volatility is on the rise. However, setting a limit order can take some finesse. A buy limit order is usually set at or below the current market price, and a sell limit order is usually set at or above the current market price. The price at which you might set a limit order above or below the current price can depend on a number of factors, including the level of volatility in the market and the specific characteristics of the security you are trading. More than limitsAdvanced conditional ordersIn addition to basic order types, there are a number of more advanced, conditional orders that you may want to consider implementing, if appropriate for your strategy. They include One-Triggers-the-Other (OTO), One-Cancels-the-Other (OCO), and One-Triggers-a-One-Cancels-the-Other (OTOCO). There are a number of other order types that can help you manage your positions. One thing to be aware of when it comes to limit orders, for example, is that it may be filled in whole, in part, or not at all, depending on the number of shares available for sale or purchase at the time. It might make sense to place additional conditional orders. Choices include:
Investing implicationsIf your trading strategy is working for you, then carry on. However, if you aren’t making use of trading orders, you may want to consider doing so. Next steps to considerFind new investing ideas and get up-to-the-minute market data. Learn what you need to know before trading the market. Find general order types, advanced orders, and basket trading.  Send to (Separate multiple e-mail addresses with commas) Please enter a valid e-mail address Your E-Mail Address Please enter a valid e-mail address Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: " Your e-mail has been sent. Your e-mail has been sent. Different order types can result in vastly different outcomes; it's important to understand the distinctions among them. Here we focus on three main order types: market orders, limit orders, and stop orders—how they differ and when to consider each. It helps to think of each order type as a distinct tool, suited to its own purpose. Whether you're buying or selling, it's important to identify your primary goal—whether it's having your order filled quickly at the prevailing market price or controlling the price of your trade. Then you can determine which order type is most appropriate to achieve your goal. What is a market order and how do I use it?A market order is an order to buy or sell a stock at the market's current best available price. A market order typically ensures an execution, but it does not guarantee a specified price. Market orders are optimal when the primary goal is to execute the trade immediately. A market order is generally appropriate when you think a stock is priced right, when you are sure you want a fill on your order, or when you want an immediate execution. A few caveats: A stock's quote typically includes the highest bid (for sellers), lowest offer (for buyers), and the last trade price. However, the last trade price may not necessarily be current, particularly in the case of less-liquid stocks, whose last trade may have occurred minutes or hours ago. This might also be the case in fast-moving markets, when stock prices can change significantly in a short period of time. Therefore, when placing a market order, the current bid and offer prices are generally of greater importance than the last trade price. Generally, market orders should be placed only during market hours. A market order placed when markets are closed would be executed at the next market open, which could be significantly higher or lower from its prior close. Between market sessions, numerous factors can impact a stock's price, such as the release of earnings, company news or economic data, or unexpected events that affect an entire industry, sector or the market as a whole. What is a limit order and how does it work?A limit order is an order to buy or sell a stock with a restriction on the maximum price to be paid or the minimum price to be received (the "limit price"). If the order is filled, it will only be at the specified limit price or better. However, there is no assurance of execution. A limit order may be appropriate when you think you can buy at a price lower than--or sell at a price higher than--the current quote. Source: StreetSmart Edge®. The above chart illustrates the use of market orders versus limit orders. In this example, the last trade price was roughly $139.
Note, even if the stock reaches the specified limit price, your order may not be filled, because there may be orders ahead of yours that eliminate the availability of shares at the limit price. (Limit orders are generally executed on a first-come, first served basis.) Also note that with a limit order, the price at which the order is executed can be lower than the limit price, in the case of a buy order, or higher than the limit price, in the case of a sell order. If the limit order to buy at $133 was set as "Good 'til Canceled," rather than "Day Only," it would still be in effect the following trading day. If the stock were to open at $130, the buy limit order would be triggered and the purchase price expected to be around $130--a more favorable price to the buyer. Conversely, with the sell limit order at $142, if the stock were to open at $145, the limit order would be triggered and be filled at a price close to $145--again, more favorable to the seller. What is a stop order, and how is it used?A stop order is an order to buy or sell a stock at the market price once the stock has traded at or through a specified price (the "stop price"). If the stock reaches the stop price, the order becomes a market order and is filled at the next available market price. If the stock fails to reach the stop price, the order is not executed. A stop order may be appropriate in these scenarios:
A sell stop order is sometimes referred to as a "stop-loss" order because it can be used to help protect an unrealized gain or seek to minimize a loss. A sell stop order is entered at a stop price below the current market price; if the stock drops to the stop price (or trades below it), the stop order to sell is triggered and becomes a market order to be executed at the market's current price. This sell stop order is not guaranteed to execute near your stop price. A stop order may also be used to buy. A buy stop order is entered at a stop price above the current market price (in essence "stopping" the stock from getting away from you as it rises). Let's revisit our previous example, but look at the potential impacts of using a stop order to buy and a stop order to sell--with the stop prices the same as the limit prices previously used. While the two graphs may look similar, note that the position of the red and green arrows is reversed: the stop order to sell would trigger when the stock price hits $133 (or below), and would be executed as a market order at the current price. So, if the stock were to fall further after hitting the stop price, it's possible that the order could be executed at a price that's lower than the stop price. Conversely, for the stop order to buy, once the stop price of $142 is reached, the order could be executed at a higher price. Source: StreetSmart Edge. What are price gaps?A price gap occurs when a stock's price makes a sharp move up or down with no trading occurring in between. It can be due to factors like earnings announcements, a change in an analyst's outlook or a news release. Gaps frequently occur at the open of major exchanges, when news or events outside of trading hours have created an imbalance in supply and demand. Stop orders and price gapsRemember that the key difference between a limit order and a stop order is that the limit order will only be filled at the specified limit price or better; whereas, once a stop order triggers at the specified price, it will be filled at the prevailing price in the market--which means that it could be executed at a price significantly different than the stop price. The next chart shows a stock that "gapped down" from $29 to $25.20 between its previous close and its next opening. A stop order to sell at a stop price of $29--which would trigger at the market's open because the stock's price fell below the stop price and, as a market order, execute at $25.20--could be significantly lower than intended, and worse for the seller. Stop order: Gaps down can result in an unexpected lower price.Source: StreetSmart Edge. Limit orders and price gapsIn a similar way that a "gap down" can work against you with a stop order to sell, a "gap up" can work in your favor in the case of a limit order to sell, as illustrated in the chart below. In this example, a limit order to sell is placed at a limit price of $50. The stock's prior closing price was $47. If the stock opened at $63.00 due to positive news released after the prior market's close, the trade would be executed at the market's open at that price--higher than anticipated, and better for the seller. Limit order: Gap up can result in an unexpected higher price. Source: StreetSmart Edge. The bottom lineMany factors can affect trade executions. In addition to using different order types, traders can specify other conditions that affect an order's time in effect, volume or price constraints. Before placing your trade, become familiar with the various ways you can control your order; that way, you will be much more likely to receive the outcome you are seeking. Want to learn more about order types?Related topicsThe information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Schwab does not recommend the use of technical analysis as a sole means of investment research. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve. Past performance is no guarantee of future results. Investing involves risk, including loss of principal. Which of the following orders are entered above the current market price of the stock?A buy stop order is always entered at a price above the current offering price. A customer places an order to sell 100 DEF 52.25 stop. After placing the order, DEF trades as follows: 53, 52.60, 52.20, 52.10, 52.25.
When a customer buys or sells in OTC security as a net transaction it means?A net transaction means a principal transaction in which WFS, after having received an order to buy (sell) an equity security, purchases (sells) the security at one price and then sell to (buys from) you at a different price.
Which orders are lower in price than the current market?A sell stop order is entered at a stop price below the current market price. Investors generally use a sell stop order to limit a loss or protect a profit on a stock they own.
Which of the following is an order to sell a stock when the market price drops to or below a specified level?A sell stop order is entered at a stop price below the current market price; if the stock drops to the stop price (or trades below it), the stop order to sell is triggered and becomes a market order to be executed at the market's current price.
Can you buy a stock higher than market price?"Above the market" refers to an order to buy or sell at a price higher than the current market price. The most common above the market order types include limit orders to sell, stop orders to buy, or stop-limit orders to buy. Above the market can be contrasted with "below the market."
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An open buy order entered above the current market price of a security would be a:
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