Market Orders
Market orders are the most common types of stock order. The investor is looking to buy, or sell the stock at the next available price. Lets take a look at an example.
The quote for a stock has a $9.04 bid, and a $9.05 ask. The bid price represents the highest buyers, and the ask price represents the lower sellers.
So if you place a market order to buy the stock, you will get filled at the asking price of $9.05.
If you place a market order to sell the stock at market, then the order is filled at the bid price at $9.04, as long as there are enough shares available at that price at that price.
Limit Orders
Limit orders are the 2nd most common type of stock order. Lets take a look at 2 examples.
First, lets take a look at a buy limit order. Lets say the last trade for a stock is $9.04. you think the stock may go down to $8. You place a limit order to buy the stock at $8.
If the asking price goes down to $8 you buy the stock as long as there are enough shares available at that price.
Now lets take a look at a sell limit order. In this example, lets say you bought shares at 9.05, and you want to sell those shares if the stock reaches $10.
You can place a sell limit at $10, and if the bid reaches $10, your shares will automatically get sold.
Final Thoughts
So we discussed the 2 most common types of stock orders.
Market orders are the most common type of stock order. Buy market orders execute at the ask price, sell market orders execute at the bid price.
Limit orders are the 2nd most common type of order. Buy orders are typically used to buy stock at a lower price than the current market price. Sell market orders are typically used to sell existing shares at a higher price level than the current price.
These order can be entered as day orders or Good til Cancelled orders (GTC) which remain open for longer periods of time. This time limit for GTC orders varies from firm to firm.