In order to trade securities, investors need to submit trade orders, typically through their brokers. Making a mistake when submitting a trade order can be very costly for investors. But, how does a typical trader order look like? What are its essential elements?
- Define the concept of a trade order.
- Understand its essential elements.
How does a trade order look like?
A trade order is an order placed on a trading platform to buy or sell a security. In a nutshell, a trade order should specify the security you wish to trade, whether you would like to buy or sell, the amount you wish to trade, the type of the order you would like to place, and the duration of the order if appropriate. The following would be an example of a trade order:
- Security: Walmart Inc. (WMT)
- Buy/Sell?: Buy.
- Order size: 580 shares.
- Order type: Limit order at $88.
- Order duration: Day.
According to the order above, the investor wishes to purchase 580 shares of Walmart at a maximum price of $88. Moreover, the order is valid for a day. That is, the order will be cancelled if Walmart shares do not reach the limit price of $88 by the end of the trading day.
Here’s another example:
- Security: Facebook, Inc (FB)
- Buy/Sell?: Sell.
- Order size: 100 shares.
- Order type: Market order.
In this case, the investor is interested in selling 100 shares of Facebook at the prevailing market price. We would expect such a trade to be executed quickly as the investor is happy to accept the current price in the market and does not wish to submit a limit order with a higher price and wait for Facebook shares to reach that price.
Different types of trade orders
The most common types of orders are market order and limit order, which we will discuss in more detail in our next post. However, it is worth noting that there are other types of orders such as stop-loss orders and buy stop orders as well. There is also a variety of choices for order duration/length: good ‘till cancelled (GTC), fill or kill (FOK), immediate or cancel (IOC), etc. Finally, in terms of order size, it is useful to understand the concept of a lot. Any quantity of shares less than 100 shares is an odd lot. Round lots are multiples of 100 shares, such as 300 shares, 700 shares, etc. Mixed lots are quantities higher than 100 shares but are not perfectly divisible by 100, such as 583 shares.
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