When a shareholder wishes to buy or sell securities on the stock market, they submit an order to their broker. The type of order chosen determines, among other things, the priority of execution, the execution price, and the likelihood that the trade will be executed. These definitions outline the different types of stock market orders, their characteristics, and key considerations.
I. Different Types of Stock Market Orders
- Market Order (Priority Execution, Uncontrolled Price)
Definition
A market order requests immediate execution at the best available price at the time the order enters the market.
Main Advantage
High probability of execution
Point to Note
The price is not guaranteed: in a volatile market, execution may occur at a price significantly different from the one observed when the order was placed.
Typical use
A market order is generally used when execution is the priority (for example, to quickly enter or exit a position), while accepting uncertainty regarding the final price.
2. Limit Order (Price Control, Non-Guaranteed Execution)
Definition
The shareholder sets a maximum price for a buy order (the order will not be executed above this price) or a minimum price for a sell order (the order will not be executed below this price).
Key advantages
- Control over the execution price.
- A useful tool for avoiding unfavorable executions during periods of volatility.
Points to watch
Execution is not guaranteed: if the market does not quote at the limit price, the order may remain pending, be partially executed, or expire depending on its validity period.
Typical use
A limit order is appropriate when price is a priority (for example, buying only below a certain threshold, or selling above a level deemed satisfactory).
3. “Best-limit” orders: a balance depending on market conditions
Depending on the broker and market rules, the terminology may vary. The goal is generally to balance execution speed with price protection.
- “Best-execution”: aims for rapid execution at the best available price, similar to a market order, without a predefined limit price.
- “Best limit”: the order is submitted at the best available price; if the order is not fully executed, the remaining portion may remain pending at this “best price” as a limit order.
Important note
Exact definitions may vary by exchange and broker. It is recommended to verify the description provided by the broker when placing the order.
II. Order Validity Period
The validity period is a key parameter
In addition to the order type, the validity period determines how long the order can remain active:
- “Day” order: valid only during the current trading session.
- Time-limited order: valid until a specified date.
