term has two meanings:
1. Written instructions to pay money, such as checks, drafts,
bills of exchange, money orders, etc.
2. Instructions to buy or sell securities (or commodities)
to a broker.
securities market practice, orders of various types have conventionally
come to be associated with certain implied characteristics and treatment.
The following summary illustrates the various types of orders for
round lots in stock exchange practice:
1. Basic instructions in order.
Buy order-margin account or cash account.
Sell order-sell short (margin required) or sell long.
The SHORT SALE is to be executed under specific rules and procedures.
2. Size of order.
3. Price instructions.
a. Market order-to
be executed as promptly as possible, at the best possible prevailing price,
by the broker in competition with other brokers on the floor for executions.
Limit order-to be executed at the price limit or better
(if buy order: at no more
than the limit price, lower if possible; if sell order:
at not less than the limit price, higher if possible).
4. Special orders.
Stop order. Stop
orders, whether to buy or to sell, specify a price.
When the market for the stock touches that price, the stop order
is elected, and it immediately thereafter is to be treated as a market
order, i.e., to be executed as promptly as possible, at best possible
price. The stop order, therefore,
differs from the limit order in that the price specified is not determining
of price limit; in a stop order, the price specified is the point for
treatment as a market order. Thus,
stop orders are in effect deferred market orders.
In times of unusual market activity in specific stocks, to prevent
aggravation of volatile market action, stock exchange rules reserve the
right of the stock exchange administration to suspend stop orders in such
stocks. In a declining market,
for example, elected stop orders would act like land mines, exploding
into market orders to sell as the market declined, and snow-balling the
To buy. Placed at specified
price above the market; for example, a short seller having sold
short at 60 would place a stop order to buy (cover) at 61 or 62, so that
in case the stock goes up instead of down, the stop order will stop loss.
(2) To sell.
Placed at specified price below the market; for example,
a person long of stock at 60 places a stop order to sell at 59 or 58.
In case the stock goes down instead of up, the stop order will
b. Stop and limit
order-a combination of both the stop order, becoming elected when the
price specified is touched by the market, and the limit order, thereafter
to be treated as a limit order with regard to price (to be executed at
limit or better). For example,
a person has just bought 100 shares of U.S. Steel at 90.
He places an order: "Sell
100 shares U.S. Steel at 87 stop, limit 86."
Should the market drop to 87, the order is elected for action,
but to be executed at not less than 86, higher if possible.
Like the straight limit orders, stop and limit orders because of
their price limitation may cause the customer to miss the market in the
event of a pronounced uptrend or down trend, as the case may be.
To buy, price specified above current market.
To sell, price specified below current market.
Other types of orders.
(1) Discretionary order,
completely discretionary (name of stock, number of shares, buy or sell,
price, timing) or partially so (discretion as to price and timing in the
broker). Completely discretionary
orders are not forbidden under New York Stock Exchange rule, but they
must be initialed by a general partner of the member firm as of date of
entry. Partially discretionary
orders are not subject to this rule.
Most brokers discourage such orders because of the extra responsibility
(a) Straight cancel,
simply canceling an existing order.
Cancel former order (CFO order), canceling previous order,
but replacing it with details in current order.
Immediate or cancel order (fill or kill order) to be executed
immediately or else cancelled. This
type of order might be used to test the market in a stock.
5. Time specification.
a. Day order,
good only until the close of the trading session on the day of entry.
All orders, unless time is otherwise specified, are day orders.
All market orders are day orders automatically; limit orders, however,
may specify a longer time limit.
b. Other time
orders, e.g., week order (GTW order) or month order (GTM order), good
this week or good this month.
c. Open orders
(GTC orders), good 'til cancelled.
Under New York Stock Exchange rules, GTC orders must be reconfirmed
by customers at least every six months (last trading day of April and
October). Open buy orders
are marked down by the dividend on ex-dividend dates.
volume, market orders and day orders constitute the bulk of orders handled.