Module 35: Giving Instructions - Types of Orders
Welcome to the "Command Center." To be an effective trader in the high-frequency US markets, you cannot simply click "Buy." You must provide the exchange with precise instructions regarding price, timing, and risk.
1. The Core Three: Price Control
- Market Order: "Buy it NOW at whatever price is available." Guarantees rapid execution, but offers zero price control. In a volatile market, you will suffer catastrophic slippage.
- Limit Order: "Buy it ONLY if the price is $X or better." Provides absolute price control. The downside is execution risk; if the price never drops to your limit, the order remains unfilled.
- Stop-Loss (SL) Order: "If the price drops to $Y, sell everything to protect me." Once the stock hits the trigger price, the order awakens and executes to exit the position.
2. Time-In-Force Instructions
You must dictate how long the order remains valid:
- DAY Order: Valid strictly until the market closes today (4:00 PM EST).
- IOC (Immediate or Cancel): Execute whatever portion is available right now, and instantly cancel the unfilled remainder.
- GTC (Good 'Til Cancelled): Remains active for weeks or months until it is filled or manually cancelled.
3. Advanced Orders
- Bracket Order (BO): A 3-in-1 order. You place an entry limit, a profit target, and a stop-loss simultaneously. If one executes, the other is automatically cancelled (OCO - One Cancels Other).
- Iceberg Order: Used by institutional "Whales." To buy 100,000 shares without alerting the market, the order is sliced into hidden increments. Only the "tip" (e.g., 1,000 shares) is visible on the public order book.
Self-Assessment Quiz
- What is the execution risk inherent in utilizing a Limit Order?
- Explain how an OCO (One Cancels Other) Bracket Order protects a trader.