Saturday, May 17, 2008

If you have traded in US market before, you might came across different type of orders, type of fills and type of validity. What is stop loss, stop limit or GTC means?

Type of Orders
Market Order
This is an order to buy or sell a stock immediately at the best available current market price. This is considered as ‘unrestricted order’. Never use this order unless you want your order to get fill immediately, always exercise your right to bargain for the best price.

Limit Order
An order you placed with a brokerage to buy or sell a stock at a price equal to the specified price or better. Limit order guarantee a price (or better price than specified) but do not guarantee an execution.

Stop Order
This is a contingency order to buy or sell a stock when its price reaches a particular level. When the price reaches that level specified in the stop order, the stop order becomes a market order and is executed at the best possible price. Also referred to as a ‘Stop-Loss Order’

Stop Limit Order
A stop limit order combines the features of stop order with those of a limit order (you have to specify stop price and limit price). A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.

Example: Assume company XYZ share is trading at $60 and you want to buy the stock once it begins to show uptrend signal. You put in a stop-limit order to buy with stop price at $65 and the limit price at $66. If the price of company XYZ moves above $65 stop price, the order is activated and turns into a limit order. As long as the order can be filled below $66 (the limit price), then it will be filled. If stock gaps above $66, the order will not be filled.

Type of fills
Any fill type allows your order to be filled in different quantities
You placed an order of buy 3,000 XYZ shares at $1.28 LIMIT. Your order may be filled in the following to complete your order:
1000 at $1.28
500 at $1.28
400 at $1.28
200 at $1.28
900 at $1.28
With ANY fill, orders may be partially executed if there is not enough liquidity or if the market moves away from your limit price.

AON (All or None)
AON fill type allows your order to be filled in entirely or nothing at all. It indicates that you do not wish to complete a portion of your trade if all the shares are not available. ANY file type takes priority over AON file type.

Kind of validity
Day order is only valid for the trading day the order is placed. It will automatically lapse when not executed by the end of the trading day.

GTC (Good-Until-Canceled)
GTC order is active until you decide to cancel it or the trade is executed. The order is valid as long as it has not yet been executed and will be automatically sent to the exchange the next trading when the market opens.

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