Investors and traders can use various stock order types when trading stocks in Hong Kong. The most common ones are limit orders, market orders, and stop-limit orders.
Market order
A market order is a trading order to buy or sell a stock at the best available price. Market orders are typically executed immediately. If you wish to buy shares of XYZ company at the current market price, you will place a market order for XYZ stock.
Limit order
A limit order is a type of trading order to buy or sell a stock at a specific price. The broker will only execute the order if the stock’s market price reaches the specified price. For example, if an investor or trader wanted to buy shares of XYZ company at $5 per share, they would place a limit order for XYZ stock at $5. If the stock’s market price never reaches $5, they will not execute the order.
Stop-limit order
A stop-limit order is to buy or sell a stock at a specific price, but only after the stock’s price has reached a predetermined level (the ‘stop’ price). If you wish to buy shares of XYZ company at $5 per share, but only after the stock’s price had risen to $6, you will place a stop-limit order for XYZ stock with a stop price of $6 and a limit price of $5. If the stock’s price never reaches $6, they will not execute the order.
Benefits of stock orders
The main benefit of using stock orders is that it helps investors and traders to control the price at which they buy or sell shares, sometimes without the constant monitoring of market charts. If an investor wanted to buy shares of XYZ company but only for $5 per share, they could place a limit order for XYZ stock at $5, which would guarantee that they would only pay $5 per share, even if the stock’s market price later rose to $6 or higher.
Another benefit of using stock orders is that it can help investors and traders to save time. If you wish to buy shares of XYZ company but didn’t want to spend all day monitoring the stock’s price, you could place a stop-limit order for XYZ stock with a stop price of $6 and a limit price of $5. It would guarantee that the order would only be executed if and when the stock’s price rose to $6, at which point you could then turn your attention to other things.
Drawbacks of stock orders
One drawback of using stock orders is that they can’t consistently execute them at the desired price. If a trader wanted to buy shares of XYZ company at $5 per share, but the stock’s market price never reached $5, they would not execute their limit order.
Another drawback of using stock orders is that they can take time to execute. Let’s say you wanted to buy shares of XYZ company at $5 per share, but the stock’s market price is currently $6, you would not execute the limit order immediately. The order would first need to wait for the stock’s price to fall to $5 before you could execute it.
Another drawback of using stock orders can be subject to slippage. Slippage is when the actual execution price of an order is different from the desired price. So, if an investor wanted to buy shares of XYZ company at $5 per share, but the stock’s market price was currently $6, and they placed a market order, they would likely experience slippage and pay more than $5 per share.
Conclusion
Stock orders can be a helpful tool for investors and traders, but they also have some drawbacks that traders should consider. When using stock orders, it’s essential to be aware of the potential for execution at a different price than desired and the possibility of slippage. Novice traders who want to learn how to trade stocks in Hong Kong and the top stocks to buy should use a reputable and experienced online broker.