4 Stock Order Tips for Trading Success
These are some other order types and distinctions you might encounter and should at least know about when it comes to trading stocks:
All or None (AON)
An ‘all or none’ (AON) is a specification you can place on your buy and sell order. It directs the broker to either fulfill the order to the letter, or to not fill the order at all. For instance, if you want to buy or sell 100 shares and not all of them are available, the order will be canceled.
With an AON order, you give instructions about how the order will be filled, which has an effect on how long the order is active.
Whether or not an AON is fulfilled depends on various factors. For instance, a stock that has a lot of movement and a lot of shares is often less likely provide any problems.
However, if you’re placing a bigger or more substantial order, it might be harder to fulfill because you’re taking up a bigger amount of the shares traded during the trading day.
Good ‘Til Canceled (GTC)
As casual as it may sound, yes, this is an official order type.
A ‘good ‘til canceled’ (GTC) order is when you place an order to buy or sell a stock that stays active until the order is filled or you cancel it.
Don’t take the name too literally, though. They actually don’t remain active or unclosed forever.
Usually, the order will have an expiration date 30 to 90 days after it is placed. This keeps you as the investor from being surprised by a charge after you thought it was over and done with.
The idea behind GTC orders is that if you’re not able to constantly monitor stock prices, you can place your order, set it at a specific price point, and keep it open for a few weeks.
This means that you have a lot of freedom. If the price reaches your desired point within a finite period, the trade will go on.
It’s also possible to place GTC orders as specifications on stop orders. In those cases, the prices will be below or above the market prices, so that you can limit losses and maximize profits.
Why place a GTC? Once again, you want to maximize your earning potential, but don’t have time to stay right on top of it. You can place the GTC order. If it happens, it happens; after a while, you might cancel it or it will expire.
One wrinkle? GTCs can be a little harder to come by.
According to Investopedia, “Several exchanges, including the NYSE and NASDAQ no longer accept GTC orders, including stop orders. They have decided that such orders are a risk to investors who may see their orders executed an inopportune time due to temporary volatility in the market.”
However, brokerage firms still offer the GTC order, simply handling them internally.
GTCs can carry risk when the market becomes extremely volatile. Remember, it only needs to dip above or below a certain point for the trade to be executed, even if it’s for a minute. If the price rebounds immediately, it could spell out trouble.
A day order is somewhat similar to a GTC, but with a much shorter duration. This is a type of order that expires at the end of a given trading day.
The day order is an order to buy or sell a stock. Like a GTC order, it specifies the price at which a trade is executed, be it a buy or sell order. However, unlike the longer duration orders, if the trade doesn’t go through the same day, it is automatically canceled.
For many trading platforms, this is the go-to duration trading style. So if you wanted to do a longer duration like a GTC you’d have to manually do that.
Day traders often use day orders, because you can specify the specific price at which you’d like to buy or sell and that’s that. You don’t have to keep an eye on the market at all times to execute the order.
This means you can focus on doing other research or fundamental analysis to consider other trades. Since it automatically cancels if not executed at the end of the day, it’s easy to keep track of a day order.
Stock Order Tips for Successful Traders
Ready to put these different stock order types to work? Here are some tips for optimal usage:
1. Get to Know the Price Restrictions You Can Place Within an Order
Not every broker handles orders in the same way. Be sure to check out your brokerage firm’s specific restrictions and fees for placing orders so that you’re not unpleasantly surprised.
Additionally, keep in mind that if you use one of the order types that has an automatic execute, there may be tax consequences.
Tax consequences? Yep. You might be subject to unexpected expenses like higher tax rates on capital gains.
Here’s how that might work…
In general, the capital gains taxes on assets you’ve had for less than a year are lower than an individual tax rate.
However, a stop loss order could execute a sale on a stock you’ve held for less than a year. In this case, the capital gains would be taxed at potentially astronomical rates, plus other possible surcharges. Yikes.
2. Understand How Stop Limit Orders Are Executed and Filled
A stop-limit order combines a little bit of the stop and a little bit of the limit order by letting you set two different price specifications.
The first one is similar to that in a stop order: the price at which you want to execute a sale or buy.
The second is the limit, which is where you cry uncle: if the stock goes above or below that, it has exited your target price, and the order is called off.
You also have to set a time frame for this to occur; it’s a finite period of time.
As a trader, one of the benefits of the stop-limit order is that you have more control over how and when the order should be filled. However, once again, if it doesn’t reach the stop, then the trade will not go through.
3. Understand the Time Limitations You Can Place on an Order
Different stock orders have different time limits. As such, it’s important to familiarize yourself with the different types and the time restrictions associated with each.
Market, limit and stop orders can include time restrictions and other conditions. As such, it’s important to understand the restrictions on each, because you don’t want to be unpleasantly surprised.
For example, you may love the freedom that a GTC gives you to go on with your business and forget about it. But then again, if you actually do forget and then the trade is executed, it may not work out as you’d like.
Be sure to make notes on each different type of order and to strongly consider the order type that best suits the trade in question.
4. Always Seek Out More Technical Knowledge
Learning things like stock order types can seem confusing, but it will serve you well on your journey as a trader. The more technical knowledge you amass, the stronger and better informed you’ll be as an investor.
By taking trading classes, you can fast forward through learning many of the market basics like this so that you have a stronger foundation of knowledge for making investments.
This can equip you with the know-how to execute more intelligent trades, meaning that you can get yourself up to speed and work on refining your trading faster.
The Bottom Line
Getting to know the different stock order types can help you make smarter investments.
Choosing the appropriate stock order type can help you get better prices and can help ensure that you only enter trades and exit trades at points that you’ve deemed advantageous.
As a trader, you can never completely eliminate the risk factor from investing, but you can take measures to mitigate it — choosing an appropriate stock order is one invaluable technique that should be part of your repertoire.
Editor, Penny Stock Millionaires