When you place an order to buy or sell securities, you can find more-or less-than you bargained for. In some cases, the purchase price quoted to you at the time of the sale might not exactly match the price you purchase your securities. This may happen because estimates might be delayed, trades remember to execute and, in volatile markets highly, millions of shares can trade in microseconds leading to price swings. One does, however, have the energy to exercise some control over these factors by choosing the type of order you place.
FINRA is issuing this aware of inform you about order types commonly available when you get or sell securities. Understanding the huge benefits and risks of varied types of purchases may help you avoid unintended loss and better ensure your trades are performed regularly and at a price with that you are comfortable.
Market Order – An order for immediate execution to buy or sell at the best price obtainable in the market during normal trading hours, 9:30 am to 4:00 pm. With this type of order, you get the most certainty that your order will be executed, but you do not get a warranty on the execution price. A market order generally will perform at or near the current bid or ask prices in the marketplace.
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What to Know: This is the most common type of investor order. Unless you specify otherwise, agents will get into your order as a market order typically. Market orders are generally executed because they don’t have any limitations tied to them immediately. Around the downside, you might not get the price you were quoted originally, in fast-moving markets especially.
Also, if you place your order before or after normal trading hours, consider the possibility that news events or other factors may significantly impact the price of the security when the market starts again. Limit Order – An order to buy or sell a security at or better than a specified price (a “limit price”).
A buy limit order can be performed only at or below the limit price; a sell limit order can be carried out only at or above the limit price. This means you are assured to get your limit price or a much better price if your order is performed. However, there’s a chance your order might not be executed at all. For example, if the marketplace price does not match or better your limit price while your order remains energetic, you won’t be executed. Some limit orders add a time-period limit within that your trade must be placed at (or much better than) the specified price. These orders may have higher execution costs than market orders generally.
What to learn: This sort of order is perfect for traders who know the purchase price they need for a specific securities purchase and want to control market risk. Limit purchases to provide a warranty that buy orders are not executed above a maximum price and sell purchases are not performed below an established minimum.
Limit orders are often used when acquiring the right price is more important than quick execution. The major risk with limit orders is that there surely is no promise that the order will be executed. The security might not reach your limit price within the specified time limit simply, in which particular case the order will expire. Or, in a fast-moving market, prices may move right past your limit price prior to the order can take place. 100 with no order being executed. Thus, your order may be filled.