What is a stock order?

To buy a stock, you need to use a stock trade order. Read to learn more about the different types of stock orders and their uses.

Ready to invest? Pick a stock order

When an investor figures out what stock they want to purchase, they need a stock order to execute the trade.

There are many types of stock orders, with the most common being a Market Order and Limit Order.

It’s important to understand the differences between stock orders to figure out which one would best suit your needs as an investor.

Market Order

A market order is the most basic type of stock trade. It is simply an order to buy or sell a stock at a price determined once the trade executes.

The order will execute immediately, guaranteeing a trade to go through. However, because of the volatile nature of the stock market, the price when putting in the market order may not be exactly the same as the price you buy or sell at once the trade executes.

For example, if you put in a market order for a share of XYZ trading at $2000, you may end up paying a little more or less once the trade executes.

Bottom line: Use a market order if you want an immediate trade and are okay with small price fluctuations at time of trade.

Limit Order

A limit order is an order executed in the future once a stock price hits a specified value. This allows an investor to choose a price that they are willing to buy or sell a stock at, at which the trade will execute (if at all).

This order guarantees the price you want to buy or sell a stock at, but does not guarantee a trade will ever go through, especially if the specified price is much higher or lower than the current stock price.

Keep in mind that when specifying a value below the current stock price to buy or a value above to sell, the limit order will facilitate that trade immediately, meaning the price may continue dropping or increasing, resulting in some loss.

For example, you may put in a limit order to buy a stock at $100 and then the stock price goes from $110 to $90 suddenly. Since your limit order went through at $100, you are now at a $10 loss.

When buying many shares of stock, an All-or-None (AON) order executes a trade when either all the shares of the stock you requested can be bought or sold in a single order or none at all.

This is useful because when buying large amounts of shares, the order may take a while to go through since there may not be enough shares to buy at a certain time. This may result in separate orders with different prices across your order of shares. An AON order would avoid this, as the transaction would only take place if the shares can be bought all together.

An AON order will continue to be in effect unless the investor cancels it or the trade executes.

A Fill-Or-Kill (FOK) order ensures that either your entire order is fulfilled immediately, or is canceled (killed).

Because the FOK order is canceled within seconds or less if the order is not executed, this trade can never be partially executed, and does not guarantee a trade to go through.

For example, if you wanted to buy 100 shares of XYZ right now, and put in an order, a Fill-Or-Kill would ensure that either the full 100 shares is bought within seconds, or canceled.  

An Immediate-Or-Kill (IOC) order means that when an investor puts in an order for a certain amount of shares, whatever part of the order that can be fulfilled immediately gets executed, and the rest of the order is canceled.

For example, if you put in an IOC order for 100 shares of XYZ right now, but only 50 shares were immediately available, you’d get 50 and the rest of the order would be canceled.

Also known as stop or stopped market order, a stop loss order is an order goes into effect once a specified stock reaches a predetermined price. This type of order is mostly used to ensure limited loss.

The order is dormant until that point, and converts into a market order as soon as the specified price is reached.

Then, the shares are bought or sold at the best available price as in a typical market order. This is different from a limit order which locks in the predetermined price at execution.

For example, if you purchased a share of XYZ at $500, you can put in a Stop-Loss order at $400, ensuring that your stock would be sold as soon as the share price reached $400. Although the price may fluctuate a bit in the moment of execution of the market order, the trade is guaranteed to go through, ensuring you don’t take on a loss greater than approximately $100 per share.

This is similar to a stop loss order, but instead of converting into a market order once you reach the predetermined price, the order converts into a limit order.

This puts a limit on the price at which the trade will execute, combining the dormant nature of a stop order and locking in a specific price of a limit order.

However, as with regular limit orders, there is no guarantee this will execute even if the stop price is reached.

For example, if you wanted to purchase a share of XYZ at $600, a stop limit order would ensure that as soon as the share price reached $600, a limit order would execute. This doesn’t guarantee an order to go through once that price is reached, since the price may change during execution, but it does guarantee that if your order does go through, the price you pay will be at your specified price or better.

Many investors have heard of shorting a stock, which generates a profit if the price of the shorted stock falls.

In a short sell order, you sell borrowed shares of stock at a price you think is inflated. As you are the seller here, you collect the cash in this transaction.

Once the stock price falls, you would use a buy to cover order to buy back the stock to return the borrowed shares from the initial short sell to the broker.

In turn, you’d keep the difference between the cash you collected for selling the stock at a higher price, and the cash you paid to return the stock back to the lender at the lower price.

A Good 'Til Canceled order places a deadline on different stock orders, meaning any order you put in will be active until its filled, canceled, or the deadline has passed. Most brokerages will allow the length of time between an order initiating and this chosen deadline to be up to 90 days.

For example, if you put in an order for 100 shares of XYZ and choose a deadline in 10 days, three things can happen. The order will either be executed, you can cancel it yourself, or it will be canceled on its own by the chosen deadline. 

Generally, every order is by default a day order. A day order is the default time frame an order can typically stay open, unless you have decided to use a Good 'Til Cancel order which would specify a deadline. Once the trading day closes (4 pm Eastern time), your order expires. If the order had not been executed and you still want it to go through, you would need to re-order it the next trading day.

A take-profit order specifies a profit an investor wants to make, at which point a stock would be sold and the trade would close. This ensures that an investor makes the profit they specify, but like any other order of this kind (i.e. a limit order), is not guaranteed to execute.