Bid and ask — The bid price is the maximum a buyer is willing to pay for a security. The ask price is the minimum a seller is willing to accept. The difference between them, called the spread, may be as low as a penny for the stock of a large well-known company, but wider for a smaller, more obscure company.
Market order — An order to buy or sell a security immediately at the best available price (though there is no price guarantee). A market order generally will execute at or near the current bid price for a sell order, or the ask price for a buy order. However, the last-traded price, typically the price you see listed on an exchange, is not necessarily the price at which a market order will be executed.
The following order types do not guarantee that the trade will be executed. They typically allow the investor to set a time limit that may range from a day to a year.
Limit order — An order to buy or sell a security at a specific price or better. For example, if an investor wants to purchase shares of XYZ stock for no more than $10 per share, the investor could submit a buy limit order for $10 and the order will execute only if the price of XYZ stock is $10 or lower. If the investor wants to sell at a price of at least $20 per share, a sell limit order for $20 would execute only at a price of $20 or higher.
Stop order (or stop-loss order) — An order to buy or sell a security once the price reaches a specified level, known as the stop price. Investors generally use a sell stop order to limit a loss or protect a profit on a stock they own.
For example, if you own shares of XYZ security that are currently trading at $50 per share, and are concerned about holding the shares in a declining market, you could set a stop-loss order at $48 per share. If the share price declines to $48, your shares would sell at the next market price, which would typically be a little below $48 if the market decline is gradual. However, if trading is interrupted or there are large changes overnight, you could end up selling at a lower price than anticipated.
Stop-limit order — An order to buy or sell a security once the price reaches the stop price, as long as the trading price is at a specified limit price or better. This helps protect against the possibility of a stop order triggering a trade at an unwanted price. To use the example above, you could set a stop price for XYZ shares at $48 per share and a limit at $47 a share. The order would execute when the share price falls to $48 but only as long as it remains above $47.
All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.