The simplest and most common one: enter the number of shares, press Buy or Sell – and voila! – your order is filled in seconds.
A separate button on your screen as you are telling the broker that you are selling shares you don’t own. Before the order is executed the broker has to determine if it has the shares in its inventory available for shorting. Don’t worry, it’s all automatic: if you can’t short a stock, your order will be canceled (outed). (To cover your short position, you simply use a Buy.)
Stock quotes are for a 100 share lot. For example, if the quote is $25.00, only 100 shares are guaranteed at that price. If you place an order for, say, 300 shares, the rest can be executed at a different price. To avoid this, you can specify the price you are willing to pay by entering a limit, say: Buy 300 shares at $25.00 Limit. The broker is under no obligation to fill your order at that price. You may get all 300 shares, or you may get a partial fill, say 142 shares. The rest of the order may remain unfilled if the price moves up and stays there.
A Limit Buy order is entered below the market – to get a better price. A Limit Sell order is entered above the market, in effect saying that if the stock gets up to that point, you want to sell.
Stop Buy and Sell orders are the opposite: a buy order is entered above the market, a sell order – below the market. In effect you are saying that if the stock moves up to that level, I think it is going higher – buy; if the stock moves down to that level, I think it is going lower – sell. A Stop Buy is used to buy breakouts or to protect short positions. A Stop Sell is used to protect your long positions.
Stocks are quoted in bid and ask. Remember specialists and market makers? Most of the time retail orders are transacted between you and them. Bid is the price at which a specialist or market maker is willing to buy from you. Ask is the price at which he is willing to sell to you. The difference between the bid and ask – the spread – is the profit these guys make on each share they trade.
AON (All or None)
If you place a limit order to buy, say, 1,000 shares of a thinly traded stock, you may get a partial fill (say, only 300 shares). If the price moves up, the rest of your order doesn’t get filled. You will have to increase the limit to get the rest. Each time you do that, your broker will charge you a separate commission. To avoid that, you can enter an AON order, meaning that you want to buy 1,000 shares at $25.00 only if the entire 1,000 shares are available at that price. If not, your order never gets executed.
Day vs. GTC (Good Till Cancelled)
A day order is good for a day and is automatically canceled if not filled at the close. A GTC order stays on the broker’s books for 60 days. A typical use of a GTC order is to enter sell stops on your long positions to protect yourself on the downside.