by Amanda Harvey
What are Buy and Sell Orders?
These orders are directions to buy or sell a security and may be placed through a broker or sent directly to the exchange using electronic trading platforms which offer direct market access.
There are many different types of buy-and-sell orders which may be used for specific trading purposes and strategies.
Types of Buy and Sell Orders
• The most straightforward type of buy-and-sell orders are market orders. A market order is a direction to immediately execute the order to buy or sell at current market price. When a market order is placed, the priority for the trader is that the order definitely be executed, and the exact price is less important. In a fast-moving market, the actual price at execution may vary substantially from what it was when the order was placed. The price may also vary within the shares bought or sold as the order can be divided up to be executed.
• Limit orders are the type of buy-and-sell orders which involve the direction to buy no higher than or sell no lower than a set price. A trader would use limit orders when the price is of greater importance than the certainty of execution, as the order may never be executed. It is also possible that the order will be partially executed, and a portion of the number of shares specified will be bought or sold within the price limit.
• Another category of buy-and-sell orders relates to the time during which an order may be executed. These orders are referred to as time-in-force orders.
One of these time sensitive orders is a day order or a good for the day order (GFD) which remains valid from the time submitted to the close of trading that day.
A type of order that provides the trader with the ability to cancel the order at will is called a good-til-cancelled order (GTC). A GTC may remain valid indefinitely unless it is cancelled by the trader, although some brokers may set a time limit such as 90 days.
An immediate or cancel order (IOC) must be executed immediately or is cancelled by the exchange. These orders allow for partial execution, meaning that a portion of the shares specified may be bought or sold, with the remainder of the order being cancelled. IOC orders are used primarily by scalpers, whose decisions of what to buy and sell change extremely rapidly as they commonly place hundreds of orders in a trading day. Using an IOC order eliminates the inconvenience of having to manually cancel an order as their requirements change.
Fill or kill orders (FOK) are typically limit orders and must be either executed or cancelled immediately. Unlike IOC orders, they do not allow for partial execution and must be filled completely or ‘killed.’ This type of order is not used very frequently, and is considered an ‘extreme’ order. It is most often used for large orders, and the strategy of using it is to lock in the trade at the right price before public awareness of the order is able to drive the price up.
Buy and sell orders are the very basis of the trading world. When a trader makes the decision to enter a trade, part of their strategy includes deciding which of the types of buy and sell orders best fits their criteria. Once their order is placed, the outcome depends on whether the market co-operates with the execution of their trade.