The timeless yet fundamental adage when it comes to investing is “Buy low and sell high”. However, the mechanics of buying and selling are more intricate than a novice can imagine, due to a variety of options present for buying and selling.
One option available is a market order. A market order is a condition that tells the broker to buy or sell shares at the best price available by comparing an available trade to past trades and choosing the best option. A variation of a market order is a limit order where another condition is imposed such that the buyer will not purchase any shares unless all shares are offered at the best price available. This is known as a limit order with an all or nothing condition.
A stop order establishes a threshold such that a trade is only executed if a security reaches a specified price, known as a stop price. This type of order is used when a profit is guaranteed, but the disadvantage is that such a market condition may not exist and the order may never be fulfilled.
There are also other types of orders that are more time sensitive. An immediate-or-cancel order cancels the order if the order isn’t executed right away. The opposite of this is a good-till-cancelled order, where the order exists until it has been fulfilled.
A final type of order is short selling, where one can borrow shares and sell them, with the expectation that they can buy it back in the future at a lower price.
