An order in a market such as a stock market, bond market or commodities market is an instruction from a customer to a broker to buy or sell on the exchange. These instructions can be simple or complicated. There are some standard instructions for such orders.
A market order is a buy or sell order to be executed by the broker immediately at current market prices. As long as there are willing sellers and buyers, a market order will be filled.
A market order is the simplest of the order types. Once the order is placed, the customer has no control over the price at which the transaction is executed. The broker is merely supposed to find the best price available at that time. In fast-moving markets, the price paid or received may be quite different from the last price quoted before the order was entered.
A market order for a large number of shares may be split by the broker across multiple participants on the other side of the transaction, resulting in different prices for some of the shares.
A limit order is an order to buy a security at no more (or sell at no less) than a specific price. This gives the customer some control over the price at which the trade is executed, but may prevent the order from being executed ("filled").
A buy limit order can only be executed by the broker at the limit price or lower. For example, if an investor wants to buy a stock but doesn't want to pay more than $20 for the stock, the investor can place a limit order to buy the stock at any price up to $20. By entering a limit order rather than a market order, the investor will not be caught buying the stock at $30 if the price rises sharply.
A sell limit order can only be executed at the limit price or higher.
A limit order to buy may never be executed if the market price surpasses the limit before the order can be filled. Because of the added complexity, some brokerages will charge more for executing a limit order than they would for a market order.
Both buy and sell orders can be additionally constrained. Two of the most common additional constraints are Fill Or Kill (FOK) and All Or None (AON). FOK orders are either filled (partially or completely) on the first attempt or canceled outright, while AON orders stipulate that the order must be completely filled or not filled at all (but still held on the order book for later execution).
A conditional order is any order other than a limit order that requires the broker to check whether a specific condition has been met.
A stop order (also stop loss order) is an order to buy (or sell) a security once the price of the security climbed above (or dropped below) a specified stop price. When the specified stop price is reached, the stop order is entered as a market order (no limit).
With a stop order, the customer does not have to actively monitor how a stock is performing. However, because the order is triggered automatically when the stop price is reached, the stop price could be activated by a short-term fluctuation in a security's price. Once the stop price is reached, the stop order becomes a market order. In a fast-moving market, the price at which the trade is executed may be much different from the stop price. The use of stop orders is much more frequent for stocks, and futures, that trade on an exchange than in the over-the-counter (OTC) market.
A sell stop order is an instruction to sell at the best available price after the price goes below the stop price. A sell stop price is always below the current market price. For example, if an investor holds a stock currently valued at $50 and is worried that the value may drop, he/she can place a sell stop order at $40. If the share price drops to $40, the broker will sell the stock at the next available price. This can limit the investor's losses (if the stop price is at or below the purchase price) or lock in some of the investor's profits.
A buy stop order is typically used to limit a loss (or to protect an existing profit) on a short sale. A buy stop price is always above the current market price. For example, if an investor sells a stock short hoping the stock price goes down in order to give the borrowed shares back at a lower price (Covering), the investor may use a buy stop order to protect himself against losses if the price goes too high.
A stop-limit order combines the features of a stop order and a limit order. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or to sell) at no more (or less) than a specified price.
As with all limit orders, a stop-limit order may not get filled if the security's price never reaches the specified stop price.
A trailing-stop order is an order entered with a stop parameter that creates a moving or trailing activation price, hence the name. This parameter is entered as a percentage change or actual specific amount of rise (or fall) in the security price. Similarly a trailing-stop-limit order could be entered. Few brokerage firms will accept these orders as they must continuously keep track of the stock price and adjust the stop level.
A buy market-if-touched order is an order to buy at the best available price, if the market price goes down to the "if touched" level. As soon as this trigger price is touched the order becomes a market buy order.
A sell market-if-touched order is an order to sell at the best available price, if the market price goes up to the "if touched" level. As soon as this trigger price is touched the order becomes a market sell order.
Time limits on orders
Time limits can be entered in several ways. Market orders can specify the time the order is to be traded, for example at the opening or on the close. Time limits can be specified for limit orders as a day order which is good only for one day, or good-till-cancelled, which requires a specific cancelling order. Fill-or-kill orders are usually limit orders that must be executed or cancelled immediately.
Tick sensitive orders
An uptick is when the last (non-zero) price change is positive, and a downtick is when the last (non-zero) price change is negative. Any tick sensitive instruction can be entered at the trader's option, for example buy on downtick, although these orders are rare.
A discretionary order is an order that allows the broker to delay the execution at their discretion to try to get a better price. These are sometimes called not held orders.
Quantity and display instructions
A broker may be instructed not to display the order to the market. For example an "All-or-none" buy limit order is an order to buy at the specified price if another trader is offering to sell the full amount of the order, but otherwise not display the order. A so-called "iceberg order" requires the broker to display only a small part of the order, leaving a large undisplayed quantity "below the surface."
All of the above orders could be entered into an electronic market, but simple market and limit orders are generally encouraged by order priority rules. If a limit order has priority it is the next trade that will be executed at the limit price. Simple limit orders are generally given high priority, based only on a first-come-first-served rule. Conditional orders are generally given priority based on the time the condition is met. "Iceberg orders" and "dark pool orders" (which are not displayed) are given lower priority.