This article on Online Stock Trading for beginners will take you through the different types of orders.
If you have a burning desire to assimilate the best free options training course, you must familiarize yourself with these before you are ready to place your first ever stock or option trade.
Online Stock Trading For Beginners: Did You Study ?
For the purpose of this discussion, the concepts we will be discussing are applicable to both stocks and options.
Therefore, we will interchangeably use on or the other terms.
Our main objective is that by the end of this tutorial, you become familiar with the basic order types that exist.
The so complex ones are hardly used so we will spend little time illustrating them.
Before we get into the meat of our topic, we would like to reiterate that it is not sufficient to have an account, know abut the new fee structures of you broker to proclaim that you are reading for Online Stock Trading as a beginner.
Not knowing what stock or option to buy, when and how to do it is actually more important.
That process is done through study.
Any Option training course that does not put the emphasis on Studying cannot and should not be taken seriously.
I am often asked: “How long does it take to study the stock and options trading ? “.
My answer is clear: I do not know. It depends on each trader’s abilities.
Even experienced traders do not always see the market through he same lenses.
One thing for sure: you MUST put in it enough time through study to acquire the skills you will need to become a successful stocks and options trader.
Online Stock Trading For Beginners:Types of Orders
One such skills is to know about the different types of orders you can place through you broker.
Let’s introduce them here with their definitions and examples to enable you to easily become familiar with the stock and option order lingo or terminology.
ONLINE STOCK TRADING FOR BEGINNERS: Limit Order vs Market Order
The types of orders can be divided into Price Type and Duration Type.
First, here are the different types of orders based on price.
A market order is simply an order to buy or sell a stock or option contract at the market price.
So you may be wondering : What is the market price ? Who determine the market price ? How do I know the market price ?
Well, I am glad you asked.
The market price is the current price of the security. The price at which a specific security is currently being sold.
Which means, it can vary depending on where you are buying or selling it.
Your broker will always benefit from market orders because in order to fill you order, you broker can get it very quickly at a lower price on some private exchanges and get it to you for 1 or 2 cents higher.
What is the big deal you wondering ?
Imagine millions of orders instead of one or two orders on which you broker cash on 1, 2 or even more cents.
The big takeaway here is that you should void market orders unless you really need to fill (typically on selling).
Otherwise, you are bound to deal with slippage. The term refers to an order not been filled at quite the optimum price.
However, it is okay to place a market order for very liquid options for instance where the bid and the Ask are very close.
How close 1 or 2 cents maximum.
Examples of stocks with super liquid options price are: AAPL, SPY, FCX, and AMD as discussed on the topic of option chain.
A limit order is an order where you specify the highest price at which you would like to buy or sell your position.
If it is a buy, that is the maximum you are willing to buy at.
In case the order is a sell order, that is the minimum you are willing to sell the position for.
In both buy and sell Limit Order scenarios, you will input a price limit that you may have obtained through you study of the stock or option charts.
Unlike market orders, Limit orders have no guarantee of being executed.
In Option lingo, when an order is executed, it is said to be filled.
A partial fill means only some shares or contracts were filled compared to what the trader wanted.
Yet, this is what I have use 99% of the time in my options trading.
It comes from the confidence that the price will get to my limit price.
In some cases, you can even get an execution higher than your Limit price as depicted in the example below.
In the above sell trade, we were able to get more for our western Digital contract than we set on the Limit price.
6 cents more exactly. Not a big deal but still worth mentioning.
That confidence is gained through my studying of the option chain price action or the stock price action in regard to support, resistance, moving averages or VWAP as we illustrated in this video.
Stop Loss Order
A Stop order or Stop Loss order is used to exit a position.
For instance, if you happen to be bullish, it set a Stop Order to Sell when the price gets below a threshold that maybe 5% from your buying point.
This percentage loss you are willing to accept will vary whether you are trading stocks or you are trading options.
5% loss in the price of the stock will equate a much bigger percentage in the price of the option depending on the strike.
Typically, I can tolerate 30% loss on an option position.
Obviously, that is way too much for a stock where a reasonable range of loss can be set between 2% and 5%.
Stop Limit Order
A Stop Limit order functions just like a Stop (Loss) order with an extra input parameter: The limit Price.
The first input the Stop Price serves as a trigger to the trade.
At the limit is the lowest price you are willing to go to.
Example: You have 315 Calls on Apple stock expiring in 2 days.
You can set your Stop Limit order that if the contract fall below X dollar, your Sell order is triggered and you want at least Y dollar out of it.
In this scenario, X is your Stop Trigger and Y is your Limit Price.
You can guess that Y will typically be lower than X.
DAY – This order is Good for the trading Day only and will expire at the end of the day if not executed.
GTC – This order is Good Until Canceled.
The Maximum number of days a GTC order is 60 days.
GTD – Good Until Date is an order in which you must enter the Date in order future after which the order will no longer be valid.
OPG – Open Price Gap or On the Open Order is an Order valid for a brief period during the opening.
The likelihood of fill can be very low if the price is not set properly but you can also get a very favorable entry during the early price discovery phase.
I used this order type when working on automated stock trading platforms.
IOC Immediate Or Cancel Order Type is rarely used by retail traders as it is only valid within a few seconds.
It is more meant for machine trading than humans.
Trailing Stop Orders
My expertise with these type of orders draws from my years working with Proprietary Firms with a software.
I used to my trailing stop orders with EMA14 on short positions and Minute Low minus (MinuteHigh – MinuteLow) for long positions as simple basic method.
Online Stock Trading For Beginners: What Does It Look Like Inside a Trading Platform ?
Here is a Sneak Preview of Orders Types from my broker trading platform.
We provided definitions and examples for all the types of order you can find in Online Stock Trading for beginners.
They main takeaway is that you are now able to distinguish the concept of Limit Order vs. Market Order.
We truly believe that we have the best Options trading course for beginners as we strive to provide this free trading education.
If you would like to increase your knowledge and further your understanding of these concepts, may I suggest this similar article.
If you would like see how we put this information in application to make money trading Options, click here.
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