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What are the different order types?
There are two order types that are available to you when you buy Australian shares which are Market Orders & Limit Orders.
A market order is an order type to buy or sell a security at the market price. The market price means the best available price that is on offer at the time your order executes. This is the most common type of order available on the ASX.
For context, the ASX does not actually have true “market” orders like in the US. This means that “market” orders placed on the Stake platform are actually submitted as “market to limit” orders.
But, what is a “market to limit” order?
Essentially, a “market” order is converted to a limit order, hence the name “market to limit”. After a market order is sent, a limit price is placed a certain % deviation away from the current market price. This limit price is placed at a better price than the market so as to have the best possibility of being immediately filled.
So that this makes a bit more sense, let’s take a look at an example:
- The bid for stock ABC is $100.00 while the ask is $100.01
- You place a market order to buy ABC. The market-to-limit order is actually placed at a limit price of $101 (1% deviation higher)
- You are filled at $100.01 since this is the best price. Your market-to-limit order specified that you would pay no more than $101 for the stock, i.e. $101 would be the limit (maximum) you would pay for the stock, but you can still be filled for a lower price
- And, vice versa for a market sell order
A limit order is an order type that allows you to buy or sell a certain number of shares for a specified price. When submitting a limit order you will be given the option to ‘set time in market’ and have the ability to choose from two options:
Expires: End of day (Good till the market closes); or
Expires: 30 days (Good till cancelled or remains active for 30 days)
If you select the end-of-day option this order will either fill or expire at the end of the trading day. Alternatively, if you select the 30-day option, this order will remain pending for 30 days until it is executed or it is cancelled by yourself, or cancelled by the exchange.