When it comes to investing in the stock market, investors can use a variety of different order types to get the best results. The type of stock order you use will depend on your trading strategy and what best suits your needs.
Six main types of stock orders
In Australia, there are six main types of stock orders:
1. Market Order
A market order is a stock order to buy or sell a security at the best available price. Therefore, this type of order is filled immediately and is the riskiest.
2. Limit order
A limit order is a stock order to buy or sell a security at a specific price or better. Limit orders are filled if they can be matched with an opposing order, but they will not be filled if the security’s price changes before the order can be executed.
A stop-loss order is a stock order to sell a security when it reaches a specific price. This type of order protects investors from losing too much money on security.
4. Stop Buy Order
A stop buy order is an order to buy a security when it reaches a specific price. This type of order is used to protect investors from missing out on potential profits.
5. Trailing Stop Order
A trailing stop order is a stock order that adjusts the stop-loss price as the security’s price moves in favour of the investor.
6. Good Till Cancelled (GTC) Order
A GTC order is a stock order that remains open until it is either filled or cancelled by the investor. This type of stock order is often used by investors who are not hurrying to buy or sell a security.
Benefits of using stock orders
Each type of order has its own set of benefits that can be advantageous for different investors. Here are the key benefits of using limit, market, stop and trailing stop orders when trading stocks in Australia:
A limit order allows investors to specify the maximum price they are willing to pay for a security or the minimum price they are willing to sell it. This type of order gives investors more control over their investments to ensure they don’t overpay or undersell their stock. Additionally, limit orders can help protect investors from bad news announcements as the order will only be executed if the stock price falls within the limit set by the investor.
A market order is a stock order to buy or sell a security at the best available price. This type of order is ideal for investors looking to get in or out of a position quickly as it allows them to take advantage of current market conditions. However, investors should be aware that market orders can also lead to poor executions if the stock is experiencing high volatility or low liquidity in the market.
A stop order allows investors to sell a security once it reaches a specific price automatically. This type of order can help protect investors from downside risk as it will automatically sell the stock once it reaches a predetermined price. Stop orders can also help minimise losses if the stock starts to decline.
Trailing Stop Orders
A trailing stop order is very similar to a stop order, except that the trigger price will move as the security’s price moves. This type of order can help lock in profits on trending security. Additionally, it can help protect investors from downside risk if the security starts to decline in price.
Each type of order has its own set of benefits that can be advantageous for different investors. By understanding the key benefits of each order, investors can make more informed decisions about which type of order is best suited for their trading strategy. Please consult an experienced and reliable online broker from Saxo Bank for more information on stock orders.