Stock Market Order Types (Market Order, Limit Order, Stop Loss, Stop Limit)

in this video we're going to look at the four basic order types that you need to know before you buy or sell a stock if you haven't already subscribed to the channel make sure that you subscribe for more videos on money and mindful living and after you subscribe let's bring order types into a real-world situation so that we can understand what exactly an order type is when you call a restaurant to place an order they'll pick up the phone and they'll ask you is this an order for dining for take-out or for delivery all you're doing is you're letting them know how they need to get your food to you and at what price same thing with order types for investing except instead of buying food we're buying stocks all you're doing is letting the investment broker to know how and when you're buying your stock and at what price you want it so these are the four types of orders that we are going to look at a market order a limit order a stop loss and a stop limit and we will look at what happens with these both when we are buying and when we are selling first we have the market order this is the most basic type of order all you're doing is you're basically saying I want to buy a stock and I want to buy it now or if you're selling I want to sell a stock and I want to sell it now when you place a market order it is going to buy the stock at whatever the price is between when you press the Buy button and when the trade actually executes Oh point zero seven seconds later or whatever that time is but why even mention that point zero seven seconds because with a market order it can be important stock prices are moving up and down all day long we all know that but we also know that some stocks can be more volatile than others meaning that they move around more or they move around faster with a market order you are pretty much okay with that fluctuating price you're just putting in an order to buy your stock or to sell your stock at whatever the current best available price is market orders are where people trading penny stocks can get themselves into trouble so occasionally this thing happens called a pump and dump and yes it's really called that where a stock price will very rapidly go up but it will just as rapidly go back down these stock prices move so quickly that what can happen is you press the Buy button when the stock is here but in that like point zero seven two point one second window where your trade is executing the stock can skyrocket and your trade can actually go through when the price is here same thing can happen when you're selling you can press sell at the top here but the price can plummet during that point zero seven seconds and you've actually ended up selling your stock here at a much worse price this isn't really something to worry about too much market orders are probably the most common type of order primarily the areas where you would need to watch out for a rapid price change would be with penny stocks sometimes a random news event can cause that to happen or with earnings reports or supply reports those can also cause the price to rapidly change but reports are always scheduled so you can look at those and avoid trading during those times if you don't want to see the stock be super volatile the next order type is a limit order this is when you are saying I want to buy the stock but there is a limit to how much I am willing to pay for it so let's say that we have a stock trading at $25 and you put in a limit order for $20 meaning the $20 is the maximum amount that you are willing to pay the trade won't execute until it goes to or below the price that you specify it so in this case $20 now let's look at what happens when you sell with a limit order same idea you're saying I want to sell this stock but there is a limit on how low I will sell it for I will only sell it if it is above X number of dollars so the price that you enter on a sell limit order means that you want to sell it at that price or higher so let's say that we got that stock for $20 now we put in a limit sell for $30 that means that when the stock price hits $30 or higher the trade will execute and your shares will start to sell also note that with a limit order that your trade isn't necessarily guaranteed to fill completely it's possible to only get part of your order filled if the price moves too quickly and it doesn't go back to your limit price and it's also possible for it to fill in several different parts so when you look at your account summary you might see several different buys that are like a cent or two off from each other that is because your order has filled in multiple parts at multiple different price points the next order type is a stop loss this is when you are waiting for a stock to go up to a certain price before you are willing to buy it maybe I don't want to buy a stock currently because I'm not completely sure which direction it's headed in so I want to wait for this stock to start trending up so I'm going to set my stop at 11 dollars that means that once it hits 11 dollars I'm pretty certain that it's trending in an upwards direction so that order once it hits 11 dollars will become a market order and the stock will be bought at whatever the next available price is when you use a stop-loss order to sell this is when the name stop loss starts to make a little bit more sense you use a stop loss to prevent yourself from losing money if the stock price drops so you are stopping the potential loss hence a stop loss so we have two scenarios where it might make sense to use a stop loss first scenario you might say okay I'm buying in at 11 dollars because the stock is trending up but if for whatever reason the stock price starts dropping I want to get out at 10:50 so that's where I'm going to set the stop-loss order if the stock price does drop down to $10.50 it will become a market order and sell at whatever the next available price is in this case you would be using the stop-loss order to sell around 10:50 and take a small loss rather than hanging on to it while the stock price potentially continues to drop the second scenario where you might want to consider using a stop loss is to maximize your profit so let's say that you get into a stock at a really good price the stock has gone way up but you're not actually sure how much higher it can go before the price starts dropping again you don't want to lose out on the profit that you've already made so you said to sell slightly below the current price so that in case it starts dropping you won't be giving back all of the profit that you made the last order type is a stop limit order and as you can probably tell from the name that is a combination of a stop loss and a limit order with a stop limit order you are waiting for the price to go up and once it hits that target price it will trigger a limit order to buy once the stock price starts dropping again in this case our stock price is starting at $45 but we're not going to buy in yet because we want to actually wait for confirmation and that it is trending upwards so we're going to set our stop price at $55 because at that point if it hits $55 we're pretty sure that it is trending up we don't actually want to pay the full $55 for it so we set our limit price for 53 dollars and that way if the stock price pulls back a little bit we can get in at a slightly better price first selling with a stop limit once the price drops down to whatever price point you set as your stop it will then trigger a sell at whatever minimum price you enter as your limit so if we set $25 as our stop and $24 as our limit if a stock drops down to $25 our stop it will now trigger to sell our stock at no less than $24 our limit with both buying and selling there is a chance that the order won't be filled if they stock gaps what that looks like on the chart is something like this this happens when a price changes very rapidly so people were willing to buy and sell at this price point and people were willing to buy and sell at this price point but it just kind of skipped over all of the prices in between so if your order was set to sell somewhere in this range it does have the potential to just skip over it completely again this doesn't happen too often but it is something to be aware of so market orders limit orders stop losses and stop limits are the four basic order types that you will pretty much see across all brokerages some order ty may vary from brokerage to brokerage but those are the basics that is what you need to know if you enjoyed this video be sure that you give it a thumbs up subscribe to the channel and I will see you guys in the next video

Channel: Arvabelle

Views: 695,251

Rating: 4.9643865 out of 5

Keywords: Arvabelle, order types, stock market order types, order types explained, market order, limit order, stop loss, stop limit, robinhood order types, td ameritrade order types, thinkorswim order types, order types stocks, robinhood buy types, robinhood buy options, robinhood buy stock, charles schwab order types, fidelity order types, order type examples, how to buy a stock, investing, what is a limit order, what is a market order, what is a stop loss, what is a stop limit

Id: p9YndmEoJn0

Length: 9min 4sec (544 seconds)

Published: Tue Jan 28 2020

Reddit Comments

[u/alienmario]

A little clarification: the Sell Stop Limit is a bit different for the TSX as the price needs to be the same for both the stop and limit price.

[u/alienmario]

I'll have to keep this link handy because it's inevitable a question about what order to use will come up again

[u/sparky_903]

wish they had trailing stops.

[u/Leather-Astronomerx]

We have access to all types on Wealthsimple trade? No right?