Market orders, limit orders, stop orders etc. – these are all order types you ought to be familiar with for stock exchange trading.

A stock exchange order contains a lot of information: is the investor looking to buy securities or sell them? How many securities More information Securities, as a generic term, covers various financial instruments. These include shares and bonds but also units in funds and structured products. are to be bought or sold? How long is the order valid for? And of course: which securities should be bought in which currency, and on what stock market? You also have what is known as a price limit depending on the order, in other words information on whether the order may only be executed under certain conditions. Deciding on whether to opt for a limited order or not depends heavily on the investor’s expectations and goals. But let’s start by keeping things very simple. We are going to outline the four most important order types and their characteristics:

At best orders: buying and selling securities as quickly as possible

“At best orders” (also known as market orders) work like this: as soon as a counterparty More information A person buying or selling a security on the stock exchange always requires a buyer a seller, and in a stock exchange context, this is the counterparty. They may be a natural person or a legal entity. emerges, the order is executed at the current market price. There is no market price limit on how much you will pay or receive for a security. This means that, in the case of an at best order, you have no control over the final price of the security. This can become a problem, especially for securities with a low trading volume. This is why it is worth checking the order book More information The order book contains all the ongoing buy and sell orders for a given security. Whether all market players can view it or not depends on the type of order book it is. before executing the order. At best orders are thus appropriate if the investor wishes to buy or sell their security as quickly as possible.

Limit orders: you protect yourself from selling too cheaply or from paying over the odds.

If you are placing a “limit order”, you set a price limit as well as a time frame for buying or selling the security you are interested in. By doing this, you are protecting yourself from paying more for securities or from selling your securities for less than you would like. It is, however, possible that you are either unable to buy/sell anything, or you are only able to buy/sell some of your securities, in other words you have only achieved “partial execution”. This depends on the trading volume and the limit you have selected.

Stop orders: protecting yourself against drops in share prices.

If you choose a “stop order”, you set a certain price (also known as a trigger here) as an investor. If the security you are trying to sell reaches or exceeds this price, your order is executed as an at best order. Stop orders generally only make sense if you are selling because, by executing them, you can protect yourself against a drop in share price or a major, unexpected fall in value.

Stop-limit orders: no risk of selling too cheaply

Stop limit orders fulfil a similar function to stop orders, albeit only up to a predefined price limit. You also set a specific price beforehand in this instance (the trigger). If the security reaches this value, the order is not actually executed as an at best order. Instead, it is sold at a price that does not exceed a predefined price limit. If the price of the security falls below this limit, the order is deemed to have expired.

But that’s not all: in addition to the four order types we have discussed, there is also a whole host of other ways you can buy and sell securities, including more complex models. These other order types are covered in the “Transactions” section of our e-trading FAQ. Make sure you only use these order types if you know exactly what expectations you have of the market, and if you know exactly what effect a certain order type has.