Dear Reader,
It’s been a couple of weeks since we’ve been able to spend time on the Cash Course, thanks to a series of a breaking news events, like Hurricane Debby flooding Florida and the market meltdown that happened last Monday.
But now that the flood waters have receded and the markets have stabilized, it’s time to pick up where we left off.
And today, in Part 7, I want to talk about order types. An order type is exactly what it sounds like… a set of instructions – or orders – that tell your broker how execute a trade (whether online or over the phone).
There are a variety of types of orders you can place (such as market, limit, all or none, contingent, and more). And while many factors can determine the profitability of your trades (like timing and the movement of the underlying stock), the type of order you place can also have a huge impact on how your trade works out.
So, I’m going to show you my four favorite order types and when to use them. Click on the video below – and let’s jump in…
Market Order
A market order is one of the most commonly used orders and indicates a preference for quick execution relative to price specificity. This generally means that you’re willing to accept the next available price and a certain price isn’t guaranteed.
For example, let’s say you wanted to buy AAPL right now, regardless of the stock price. You would place an order to buy shares of AAPL at the market and pay whatever price the stock is trading at, like this:
Limit Order
A limit order can only be executed at your specific limit price or better as a way to have more control over the prices you pay to open or close a position. Keep in mind that limit orders aren’t guaranteed to execute… There has to be a buyer and seller on both sides of the trade.
Using AAPL again as an example, let’s say you wanted to buy shares but aren’t willing to pay more than $220 to do so. In this case, you would place a limit order to buy AAPL for $220 or better, meaning you’re only willing to pay $220 or less per share. And if AAPL doesn’t trade at or below $220, then your order won’t execute – and you won’t be able to purchase shares.
Here’s an example of what that looks like:
Stop Limit Order
A stop limit order combines the features of a stop order and a limit order. When the stock hits the stop price that you set, it triggers a limit order. Then, the limit order is executed at your limit price or better.
Stop limit orders are one of my favorite order types because they help to limit a loss or protect a profit in case the stock moves against you.
In the example below, the stop order would be executed when AAPL hits $250, and the limit order would be triggered because the limit price is also set to $250. If AAPL doesn’t hit $250, then this stop limit order would not be executed.
Recurring Order
This is another popular order that’s used to execute a market order on a recurring basis… daily… weekly… monthly… etc. So, if you wanted to buy shares of AAPL at the same time every day, week, month, year, etc. and didn’t care about the price, you would place a recurring order, like this:
If you have any questions about what we covered today – or another time – click here to send me a message. Just remember… I can’t provide any personalized advice, so save those questions for your broker.
I’ll be back tomorrow to tell you about another order type that’s critical for traders right now.
Seasonal bearishness will continue to be a drag on markets for the next few weeks – remember September is the single-worst month for stocks, statistically speaking.
So if you want to make money on stocks in the short term, this order type is essential.
Talk soon,
Tom Gentile
America’s Pattern Trader