Picking an Order Type

Intro — So you’ve learned about the 3 main order types: Market Orders, Limit Orders and Stop Orders. Let’s summarize how you can use them as an investor! 💸

When you go to buy or sell a stock on Bloom, you’ll see an “Order Type” option (except during extended hours, when all orders must be limit orders)

But which type should you select? 🤔

If you’re buying and selling popular, high-volume stocks and/or investing for the long-term, Market Orders are your best friend 😊

They guarantee that your order gets filled, and for popular stocks, your order fill price will usually be pretty close to the stock price, so you wouldn’t get a bad fill price 😮‍💨

However, if you’re trading lower-volume, more volatile stocks and/or making lots of frequent orders, you may consider using Limit orders

They protect you from bad fill prices, and the more low-volume stocks you trade or the more frequently you trade, the more these fill prices can impact your overall return 🛡️

Limit orders can be a great tool if you think you can buy a stock at a price lower than its current price, or sell a stock at a price higher than its current price 🛠️

Another way to use limit orders is to set a limit price that is “worse” than the current stock price. For example if the stock price is at $50 / share, you could place a limit sell at $45 / share 🤷

These orders would typically be filled very quickly, like a Market Order!

But placing them as Limit Orders protects you from bad fill prices while giving you fast execution – the best of both worlds 🌎

The main use case for Stop Orders is the Stop Loss order, which is when you intend to sell a stock if its price drops below a certain threshold 📉

Say you bought 1 share of Ploom for $40 / share, and now its price is $50 / share.

You have a positive return right now, but if Ploom stock dipped below $40 / share again, you’d be down 🤕

To protect against a loss, you can place a Stop Order with a stop price of $40 / share, so if its price drops below $40, you’ll sell and break even instead of losing money 🦺

💡 You wouldn’t be able to set up a Stop Loss with a Limit Order, because a Limit Sell will fill at a minimum price or higher, instead of waiting for the stock to drop to a certain price 🏆

Test your knowledge

What type of order is required during extended hours trading?

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When are Limit Orders particularly useful?

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What advantage do Market Orders offer?

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How can Limit Orders protect traders?

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What is the main use case of Stop Orders?

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