Trading basics understanding the Different Ways to Buy and sell stock
The Securities and Exchange Commission (SEC) is issuing this Investor Bulletin to help investors understand the different types of orders they can use to buy and sell stocks through a brokerage firm. The following are general descriptions of some of the common order types and trading instructions that investors may use to buy and sell stocks.
There are several ways to buy and sell stocks, including through your local broker, the Nasdaq Stock Market or direct market access. Investors may wish to consider different order types, trading instructions and time frames when buying and selling stocks. In this Investor Bulletin, we describe some of the most common order types available investors can use to buy and sell stock through a brokerage firm.
Following the release of this investor bulletin, the Securities and Exchange Commission (SEC) is considering whether it should impose a duty on brokers to give investors “best execution” on stock transactions. The SEC has been tasked with recommending what form of best execution should be required for two reasons: 1) Regulators want to ensure all investors have access to quality brokerage services that help them get better prices when they trade stocks; 2) Regulators want to ensure investors are aware of such brokerage services before making a trade.
Market and Limit Orders
Market order
A market order is an order to buy or sell a stock at the best available price, currently. Generally, this type of order will be executed immediately. However, the price at which a market order will be executed is not guaranteed. It is important for investors to remember that the last-traded price is not necessarily the price at which a market order will be executed in fast-moving markets.
A market order is an order to buy or sell a stock at the current best available price on a given day. Each day, investors will check the real time quote to see if they can place orders at current prices. For this reason, it is important to understand what a market order is. It is usually executed immediately, but there is no guarantee on when your order will be executed.
Limit order
Limit orders are a form of market order that specify a price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. A limit order is not guaranteed to execute. The most common use of a limit order is to set stop loss orders. The aim of setting stop loss orders is to protect an investment by ensuring that no trade will cost more than you expected when placing it.
There are two types of limit orders. The first is a pullback limit order, where you specify both your desired price (the limit) and the number of shares to be purchased or sold. This type of order guarantees that the order will never be filled at a price lower than the specified limit. There is also a limit price.
