Different Buy and Sell Stock orders

When you buy or sell shares of stock, there are several stipulations you can put on the order to lock in profit, or limit your losses. These can take a little of the risk and fear out of stock trading, if you're new to it, as I am, and are generally used by savvy pros as well. The picture to the right is from the trading screen of my Scottrade account. I left it mostly blank, but notice I have the order type drop box open. Also notice the "AON" box is checked to the right of the shares box. These are what we are here to address.

AON stands for "all or none." If you purchase or sell a large number of shares, the broker may not execute the order all at once. It may be done a few shares at a time as they become available. This also means you may get a different price each time an order is made. Checking the "AON" box stipulates that you want the order filled either all at once, or not at all. The order will never execute unless the number of shares you stipulate can be either bought or sold in one big chunk.

Now if you look at the drop box next to order type, you will see market, limit, stop, stop limit, and trailing stop. Each of these can be attached to a buy or sell order.

A market order is the most basic type. If you execute a market order, your broker will fill the order as soon as possible, at whatever price is available at the time. The advantage of a market order is that it will take precedent over all other types, because it has no restrictions, and may be filled sooner, the disadvantage is that you have no real control over the price you pay, or the price you get.

A limit order is maybe the most popular in this list. A limit order basically sets a limit on the max you are willing to pay for a stock, or the lowest you are willing to sell it for. This is important because the price can change before the order gets filled. If a share of Jones Inc. is selling at $6.50, you can issue a buy limit order for $6.60. This will ensure that you will not pay more than $6.60 for the stock. However, if the stock jumps over that price before the broker gets it, it may never be filled. You have to be careful setting a limit on sell orders. If the price falls below the limit before it can be executed, it could fall all the way to zero and never be filled. The order is only filled if it is within the limit.

A stop order, sometimes referred to as a stop-loss order is an order to buy or sell a security once it passes a certain point. If I bought Jones Inc. for $6.50 I can put a sell stop order on it for $6.25. If the stock price drops to $6.25 the stop will be triggered and become a regular market order, meaning the stock will be sold at whatever price is available at the time. People sometimes get confused about the difference between limit and stop orders. Basically, a stop order won't trigger UNTIL it passes the point you set, and a limit order won't trigger IF it passes the point you set.

As you might imagine a stop limit order combines the two. If I Jones is really poised to jump, I can issue a stop limit buy order. It's at $6.50 now, I can issue an order with a stop of $6.75 and a limit of $7.00. If the price reaches $6.75 the order becomes a limit order, and will be filled as long as the price stays below $7.00. If the price spikes over $7 before the order executes, it doesn't take place.

A trailing stop order is like a stop order, only the stop point moves with the price of the stock. If I have trusty old Jones stock worth $6.50 again, I can set a trailing stop, either by percentage, or a set dollar amount to follow behind the stock. Say I set the trailing stop for 50 cents, if the stock jumps up, the stop will always be 50 cents below the highest point the stock reached. If it hits 10 dollars, the stop price is $9.50. But, if the stock goes down, the stop stays put, so if it drops to $9.50, the trailing stop becomes a market order, and will execute at whatever price is available. These can be handy, but you have to be careful to set the stop outside of the range of normal fluctuations, or you'll end up selling your stock during a momentary dip.

Below the order type box, you can also set the duration of the order.  This is very handy.  You can set the order to expire at the end of the day, on a specific date, or to sit there until you cancel it.  If you have a limit order that may or may not get filled today, you can set it to expire a week from today, or go on indefinitely, "good til cancelled."  It should be pointed out, though, that with some brokers, good til cancelled orders are deleted periodically, sometimes once a month.

These are the basics for newbies in the market. We're not going to go into selling short and margin buying now, as these are far riskier and I'm not interested in advocating them to new investors. Essentially, they can lead to losing more money than you originally had if you don't know what you're doing. Buying on margin involves borrowing money to buy stock, and selling short involves betting the market will go down. Since there is no limit to how far it can go UP, you could lose your butt.