Stake Academy - Order Types - Stake Global

Stake Academy: Order Types

As veterans of Wall St will attest, one way to gain an edge on the market is by efficiently executing buys and sells. Stake’s wide range of order types allows traders to have full control over their trading strategy.

With that, here are the 6 order types offered to Stake traders:

Market Orders: buys and sells

The most straightforward order type, a market order will fill at the best available price on the market.

Benefits

  • Instant fulfillment during market hours.

Considerations

  • Slippage: when executing a market order, your final executed price may be different from the price quoted when the order is placed.

Market orders in practice

Let’s use the fictitious company Maverick ($MVK) through our examples. A hot stock producing cutting-edge technology to solve the world’s biggest existential problems.

You need a piece of $MVK and are willing to pay any price for it. You submit a market buy for US$2000 worth of the stock. You will receive as many shares as $2000 can buy at any price the stock is trading at. It’s important to note that if the stock price isn’t equally divisible you will receive a fractional of stock.

If the stock is at $50, you will receive 40 shares.

If the stock is at $51, you will receive 39.21 shares.

Similarly, following a rally you are ready to sell. Placing a market sell for your 40 shares (or 39.21 shares) will sell them at the best available price.

While buying winning stocks is important, selling is where the money is really made. Effective order placement can lock in big profits.

Stop sell (aka stop-loss)

A stop sell triggers a market sell when a stock passes below a certain price.

For example, Maverick ($MVK) is trading at $89.50. You have a stop loss at $85. During the session, the stock slides down past $85 and closes at $80. Once the stock hit $85 a market sell was triggered and your losses were capped.

Benefits

  • Assures peace of mind that losses can be minimised if you are unable to monitor your positions e.g. when sleeping, working.

Considerations

  • The gap down: Most typically relevant when a stock moves overnight, stocks can commence a session at a price below your stop order.

For example, $MVK closed trading on Monday at $89.50. You have a stop in place at $80. After a horrible earnings report, the stock gaps down to $75 at market open. Your stop loss will trigger an immediate market sell at open as the price fell below $80.

Important to note

  • On Stake, a stop order will remain pending for 90 days or until canceled.
  • Stop sells must be more than $0.05 below market price.
  • A stop sell and limit sell (below) cannot be placed concurrently.

Limit Sell

On the flip slip side, a limit sell provides a tool to take profit should the stock rise above a certain price.

For example, $MVK is at $100 a share. You want to take profit if it reaches $150 a share. A limit sell will sell your shares for $150 or better once the price passes $150.

Benefits

  • Profits can be locked in at a specified price should you not be able to actively manage your position.

Considerations

  • Limit orders can only be placed for a whole number of shares.
  • Limit orders will automatically cancel at market close.
  • Our broker-dealer enforces a 200% limit above the market price for a limit sell. However, our broker-dealer may change this limit during periods of market volatility or other times.
  • A limit sell and stop sell (above) cannot be placed concurrently.
  • A limit order will only execute at your specified limit price or better. For larger orders or trades in more illiquid stocks, your order may only partially fill if the price quickly falls below your limit price.

Stop Buy

Some traders enter positions based on price action; buy high, sell higher. A stop buy is an effective order type to enter a stock as it breaks out. A stop buy will place a market buy once a stock passes above a specified price.

Benefits

  • Guarantee an entry should a stock begin a rally.

Considerations

  • Gap risk; like outlined above, a stock could gap above your stop buy price and fill at a potentially undesirable price.
  • Stop buys must sit $0.05 above market price

Stop Buy in practice

Let’s say $MVK is hitting resistance at $100. It has hit $100 5 times in the last month but hasn’t broken above it. You only want to buy the stock if it breaks above $100, a sign of momentum. Placing a stop buy at $105 will assist in doing so.

Beware, if the stock has a positive announcement before the market opens, it could gap up and start trading at $120; the price your order will be filled at.

Limit Buy

Looking to buy the dip? A limit buy is used to purchase shares should the price of a stock fall to a specific level. Such an order type will only fill at your specified price or lower.

For example, $MVK is at $90. You only want to buy if the price falls. You set a limit at $75. Another bad earnings report knocks the price down to $75 and your order is automatically filled.

Benefits

  • Take advantage of dips in price.

Considerations

  • Your order won’t necessarily fill completely if the stock price only briefly passes your order price; this is mainly an issue for larger orders or illiquid stocks.
  • Limit orders will automatically cancel at market close.
  • Gap risk; like outlined above, a stock could gap below your limit buy price and fill at a potentially undesirable price.