There are several kinds of orders that you can use while buying or selling stocks. These include:
This is an order to purchase or dispose of a stock at a specific price or better. By right this should be the most common order that is used by traders. Regrettably, most traders are worried that their orders will not get executed as the order does not guarantee execution and thus they utilize a market order instead.
The fact is that if the trader is able to gauge the market correctly, he will be able to get his limit order executed most of the time. As the price at execution is within acceptable range, this far outweighs the inconvenience of having an unfilled limit order. Apart from this, often it is possible to acquire a better price than utilizing a market order.
This is the fastest way of ensuring that your order gets executed. The market order is an order to purchase or sell a specific quantity of stocks at the best PREVAILING market price. It is sometimes known as an “unrestricted order”. Although most commonly used, this order does not guarantee that the trader will get the best possible price especially if that stock is a low volume stock. At times, the Ask price of a low volume stock can be higher than the market price. It is only recommended to use this type of order with a high volume stock.
A stop order turns into a market order when a specific price (stop price) is attained. This type of order can also be used to protect unrealized gains or to limit losses by placing a buy stop order above the prevailing price and sell stop order below the prevailing price respectively. If you have a direct access RealTick system, you will be able to utilize enhanced editions of the stop order. This is an extremely useful system especially for the novice trader who needs to learn discipline in curtailing his losses.