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Types of investment orders

An order is an instruction to buy or sell an asset. The bid rate is the rate at which a trader is willing to buy while an ask/offer rate is the rate at which he offers to sell.

Types of order instructions

An order is accompanies by other instruments, such as instructions on how to fill the order (called execution instructions), when the order may be filled (called validity instructions), and how to arrange the final settlement of the trade (called the clearing instructions).

Traders who offer are said to make the mark and those who trade with them take the market. The difference between the best bid (highest bid) and best offer/ask (lowest ask) is called the market bid-ask spread.

Execution instructions in investment orders

Market order vs limit order

A market order requires a broker to accept the prevailing market price immediately available while a limit order requires the best price lower than the limit price in case of a buy order and higher than the limit price in case of a sell order.

The main advantage of the market order is that they can be executed right away but they can be expensive, particularly when the order size is large. On the other hand, while a limit order keeps the exchange price within a specific limit, there is no guarantee that it will be executed.

Aggressively-priced order

An aggressively-priced order is close to the best bid or best offer.

Marketable limit order

A marketable limit order is an order at least a portion of which can immediately trade. An order is behind the market is if it is lower than the best bid (in case of a buy order) or higher than the highest offer (in case of a sell order). Limit orders which are behind the market are called standing limit orders.

All-or-nothing order

An all-or-nothing order is an order which either trades in fall or nothing at all.

Hidden orders and iceberg orderse

Hidden orders are exposed only to brokers who are capable of filling it.

Iceberg orders are orders only a small portion of which is displayed.

Validity instructions in investment orders

Based on validity instructions, orders are either:

  • Day orders, which are valid till the close of business.
  • Good-till-canceled (GTC) orders,
  • Immediate-or-cancel orders (also called fill-or-kill orders),
  • Good-on-close (also called market-on-close) orders, which are to be traded at the close of the market, and
  • Good-on-open orders, which must be traded when the market opens.

A stop-order (also called stop-loss order) is an order which specifies a price (called stop price) which if reached triggers execution of the order. A stop buy order is traded when the stock rises and touches the stop price and a stop sell order is executed when prices are falling and reaches down to the stop price.

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