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2021-04-14 16:45:58
The stock market allows you to make three types of operations: buy a stock or open a long position; sell a stock in order to close a long position; sell a stock that is not actually in your possession, meaning you borrow it from your broker and thus, open a short position. All these operations are executed by means of orders that you put through a broker. Every order has its own description and rules for execution which come from that time when they were used by traders standing on the floor of the exchange. These days, the descriptions remain the same but they are not expressed verbally but through pressing some buttons. Since every trade is double-sided (buyer and seller), one party will always be on the side of the better price and the other one will get the worse price. For example, the lower price will always appeal to the buyer because they are obviously interested in buying cheap; in the meantime, sellers would like for the price to be higher so that they can have a better deal for themselves.
You will need to use the appropriate order for the appropriate strategy because in trading everything must be done in coordination. If you neglect certain parameters, you may find that they are not suitable for each other. Unless you specify the type of order you want to use when you buy and sell shares, then you are getting what is known as the default or the standard, market order. It also referred to as an unrestricted order because it does not place any limitations on the price or time when the order is supposed to be carried out. This is how most new investors trade. Brokers do not usually charge too much on this type of orders because they have to make minimal efforts in this case.
A market order wants to fill at the best available price at the current time. This simply means that you are buying and selling at the market price so you get whatever the shares are at when you enter your trade. With a standard order you tell your broker to buy and you will find out how much you wound up paying. We are guaranteed that the order will get filled almost immediately. However, you should be cautious when you are using market order in the stocks which have low average daily volumes of trades: with these market conditions the asking price could be significantly higher than the current market price as a result of a big spread. During moments of high market volatility the difference between the price that you see when you open the position through a trading terminal and the price the order will actually use can be quite substantial. Despite this inconvenience, it could be the best possible option for you because the price can move even further. In other words, you could be forced to spend a lot more than you initially anticipated to.
When you choose the Sell by market or Buy by market options in the trading terminal, you need to understand that the order will get filled at that market price that will be true for the moment a contractor receives the order. Due to the fact that the volume available at the time is limited, the price can differ from the one you saw previously. In order to ensure the best possible outcome, the order is automatically compared to paired counter-offers and carried out as a unit or alternatively, divided into several smaller transactions. For example, client 1 wants to open a short position for 400,000 EUR/CHF using a market order. Meanwhile, client 2 placed an order to buy 300,000 EUR/CHF at 1.1678 and client 3 placed an order to buy 200,000 EUR/CHF at 1,1680. Therefore, the first client's order will be executed at 1.1679 because (200,000*1.1678 + 200,000*1.1680)/400,000 = 1.1679. When a client opts for a market order, they cannot set stop-loss or take-profit levels but these parameters can be added to an already opened position using a Modification mode.
Other than that, we should mention limit and stop orders. Limit order is going to get filled in only at the price specified by the trader or at a better one in case the market reaches it. For example, for Bid 11.00 and Ask 11.65 we sent a Buy Limit at 11.85. In such a case, it will go for 11.65 because the market price is more profitable than the initial conditions. Stop order is the complete opposite to limit order; its gets filled either at the market price or the worse one. For example, if Bid and Ask are currently 11.00 and 11.65 respectively and we send Sell Stop at 11.70, it will turn into Sell Market - the conditions will be observed. These are the main order types most traders use but you can also come across several specific ones designed for trading session opening and closing.
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