Browse Investments Products

9.5.1 Types Of Orders

Comprehensive guide to different types of stock orders including market, limit, day, good-through, on-stop sell, on-stop buy, and professional types.

Learning the various types of orders is essential for trading success. In this section, we will delve into different types of stock orders including market, limit, day, good-through, on-stop sell, on-stop buy, and professional orders. Let’s explore each type in detail.

Market Order

A market order is an order to buy or sell a specified number of securities at the prevailing market price. All orders not bearing a specific price are considered market orders. This type of order ensures execution but does not guarantee the price, which can fluctuate especially in a less liquid market.

Example:

If the bid is $19.90 and the ask is $20.10 for ABC stock:

  • “Buy 1,000 shares of ABC at market.” This order will fill at $20.10 per share.
  • “Sell 1,000 shares of ABC at market.” This order will fill at $19.90 per share.

Limit Order

A limit order is an order to buy or sell securities at a specific price or better. The benefit is that the order will be executed only at the target price or better, ensuring price certainty but not execution certainty.

Example:

If the bid is $19.90 and the ask is $20.00 for ABC stock:

  • “Buy 1,000 shares of ABC at $20.00 or less.” This order will be executed at $20.00 or less if possible.
  • “Sell 1,000 shares of ABC at $20.00 or more.” This order will execute at $20.00 or higher if possible.

Day Order

A day order is an order to buy or sell that expires at the end of the trading day if not executed.

Example:

  • “Buy 1,000 shares of ABC at $20.00 or less.” This order expires if not executed by the close of the trading day.

Good Through Order

A good through order remains valid for a specific number of days. If not executed within that period, it is canceled.

Example:

  • “Sell 1,000 shares of ABC if the price reaches $20.00 or more on or before March 30.” This order aims to take advantage of target prices over a limited time frame.

On-Stop Sell Order

An on-stop sell order, also known as a stop-loss order, becomes active below the current market price. It aims to protect against significant losses or secure profits.

Example:

  • “Sell 200 shares of ABC if the price drops to $24.50 or below.” This example helps manage risks by capping potential losses.

On-Stop Buy Order

An on-stop buy order becomes active above the current market price and is used both to protect short positions and to capitalize on upward price movements.

Example:

  • “Buy 100 shares of ABC if the price rises to $35.00 or above.” It provides safety for short positions and captures upward trends.

Professional (PRO) Order

A PRO order applies to accounts where dealer members’ employees have direct or indirect interests. These are executed only after client orders at the same price level, ensuring client order priority.

Example:

An order by a dealer employee to “sell 100 shares of ABC at $20” marked PRO will be fulfilled only after client orders at the same price.

Frequently Asked Questions

What is the main difference between a market order and a limit order? A market order guarantees execution but not price, while a limit order guarantees price but not execution.

Is there a risk to using day orders? Yes, day orders expire if not executed by the end of the trading day, which could result in missed opportunities.

Why use an on-stop order? On-stop orders help manage risk by setting caps on maximum loss for sell orders or securing specific buy prices.

Key Terms & Definitions

  • Ask Price: The lowest price a seller is willing to accept for a security.
  • Bid Price: The highest price a buyer is willing to pay for a security.
  • Stop-Loss Order: An order placed to minimize losses on a security by selling it when the price falls below a certain level.
  • Limit Order: An order to buy or sell at a specific price or better.
  • Market Order: An order to buy or sell immediately at the current market price.

Key Takeaways

  • Use market orders in highly liquid markets for guaranteed execution at prevailing prices.
  • Utilize limit orders when targeting specific buying or selling prices but be prepared for the possibility of non-execution.
  • Day orders expire at the end of the trading day; ensure they align with your trading strategy timeframe.
  • Good through orders offer the flexibility of extended timeframes for order execution, providing more opportunities to reach target prices.
  • On-stop sell and buy orders are critical tools for risk management and protecting profits or limiting losses.
  • Professional orders ensure clients’ orders take precedence over employee orders.

Equity Securities: Equity Transactions

Equity transactions cover a fundamental core of investment types, and mastering types of orders is crucial for effective trading and investment strategies. Let’s continuously aim for greater adeptness in deploying and managing stock orders efficiently.


📚✨ Quiz Time! ✨📚

🧐 Assess and Solidify Your Understanding

Welcome to the Knowledge Checkpoint! You’ll find 10 carefully curated quizzes designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you’re on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey. 📘✨

Good luck! 🍀💪

## Which of the following best describes a market order? - [ ] An order to buy or sell securities at a specific price or better - [ ] An order to buy or sell that expires at the end of the day - [ ] An order to sell securities when the price drops to a specific level - [x] An order to buy or sell a specified number of securities at the prevailing market price > **Explanation:** A market order is executed at the current market price, ensuring that the trade is completed but not guaranteeing the exact price. ## What is a primary benefit of using a market order? - [ ] Certainty of execution price - [ ] Suitable for illiquid markets - [x] Certainty that the order will be executed - [ ] It does not require monitoring of the market price > **Explanation:** A market order guarantees execution, but the price may vary, especially in less liquid markets. ## Which type of order would you use to buy shares only if they fall to a certain price? - [ ] Market order - [x] Limit order - [ ] On-stop buy order - [ ] Good through order > **Explanation:** A limit order ensures execution only at the specified price or better, providing control over the purchase price. ## How does a day order function? - [ ] Good until explicitly cancelled - [ ] Executed immediately at market price - [x] Expires at the end of the trading day if not executed - [ ] Executes only if the price moves in favor of the investor during the day > **Explanation:** A day order is valid only for the trading day it was placed; it will expire if not executed within that day. ## What distinguishes a good through order from a day order? - [ ] It ensures immediate execution at market price - [ ] It is used for illiquid markets - [x] It remains active for a specified number of days until executed or canceled - [ ] It triggers a buy when the stock price is rising > **Explanation:** A good through order remains active for the number of days specified by the investor, unlike a day order which expires at the end of the trading day. ## Which scenario best fits an on-stop sell order? - [ ] Protecting or locking in profits when stock price rises - [x] Protecting against losses by selling when price drops to a certain level - [ ] Ensuring purchase only if stock price drops - [ ] Specifying a price to buy securities > **Explanation:** An on-stop sell order becomes active when the stock price falls to or below a specified level, aiming to limit losses. ## What purpose does an on-stop buy order serve? - [x] To buy a stock at or above a certain price, often to protect a short position or follow a positive trend - [ ] To sell a stock at or above a certain price - [ ] To hold an order until the end of the trading day - [ ] To purchase securities at the exact market price > **Explanation:** An on-stop buy order is intended to buy a stock when it reaches a specified price, often used to protect a short position or capitalize on upward trends. ## In the context of professional orders, what priority is given? - [x] Client orders are given priority over non-client (PRO) orders - [ ] Non-client orders are given priority over client orders - [ ] Both types of orders are executed simultaneously regardless of priority - [ ] Professional orders are executed first to avoid conflict of interest > **Explanation:** To protect public investors, client orders are executed before non-client or professional orders at the same price. ## When might a good through order be most beneficial? - [ ] When wanting immediate execution at current price - [ ] For avoiding setting expiration dates on orders - [ ] When unsure about day's market conditions - [x] When anticipating price movement over several days > **Explanation:** A good through order allows for a specified duration, making it useful when anticipating gradual price changes over time. ## Which order is best for an investor seeking to profit only if a stock demonstrates a continued upward move? - [ ] Market order - [ ] Day order - [x] On-stop buy order - [ ] Limit order > **Explanation:** An on-stop buy order is used to buy securities at or above a certain price, typically following upward momentum indicating a buy signal.

📢
Exciting News!

🚀 Launch Date: April 14th

🎉 Now On App Store!

📱 Available on iPhone and iPad

📚 Master the CSC® Exams with our top ranked iOS app! Packed with thousands of sample questions, it's your perfect study companion for acing the Canadian Securities Course Certification exams!

🎯 Achieve Your Professional Goals with ease. Try it now and take the first step towards success!

🌟 CSC® Exams 🌟

Download Today!

Saturday, July 13, 2024