As the trading mechanism keeps developing, there are now many types of orders that you can use to help facilitate your entry and exit. You will learn more as your trading skills improve, but initially you should have a good understanding of these three basic orders. They are market order, limit order, and stop order.
Market order is the order to buy (or sell) stocks that will be executed at the available ask (or bid) price. If the current bid and ask price stand at $20.00 and $20.10, your buy market order will be immediately filled at $20.10 and your sell market order will be immediately filled at $20.00. I would not recommend you to use this type of order, as the bid and ask price can change anytime and the consequence is that your market order can be filled at a price beyond your intended level and you have no control over it. For example, If the price suddenly spikes at the time your market order is entered, and the bid and ask price have moved to $21.00 and $21.10, your buy market order will then be filled at $21.10 instead of $20.10.
Limit order is the order to buy (or sell) stocks at a specified price or lower (or higher). This is the type of order I use most of the time. For example, at the current bid and ask price of $20.00 and $20.10, if you put a sell limit order at $20.05, your order will not get filled until someone is willing to increase his/her bid to $20.05. The same thing applies to buy limit order. As a result, your order may not always get filled. But the good thing is that you have control over the price level of your entry or exit.
Stop loss order is very important as it is a means to protect you from huge potential losses. You would want to put in this order when you have had a position. There are two types of stop loss orders, namely stop market order and stop limit order. Stop market order is the order to buy (or sell) stocks at the market price contingent upon a specified price being triggered. In the case of stop limit order, when the specified price is triggered, your stop limit order will become a limit order (instead of a market order). For example, sell stop market order with $21.00 stop will be filled at the available bid price when the price hits $21. A sell stop limit order with $21.00 stop and $20.90 limit will be filled at $20.90 or higher contingent upon the price hits $21.
As with limit order, a stop limit order does not always get filled, even though the trigger price has been hit. A stop market order always gets filled once the trigger price is hit, but in the volatile market, the order could be filled outside your anticipated price.
