What Are Orders (Part 1)

What are Orders? (Part 1) 

Buying/selling a security does not occur without this step happening first, the trader must first place what is called an order if they want to purchase/sell a security under specified conditions. From there, another trader must decide if they will buy/sell the security from you. Similar to how you order food at a restaurant, you must place an order for a meal, wait a certain amount of time for your meal to arrive, and then pay after you finished eating. If there is no waiter to take your order or your meal takes too long that you decide to leave the restaurant, then the order is effectively incomplete. You don’t pay any money and your stomach is still empty. This is exactly how securities trade in the market, you will not buy/sell the security if no one takes your order or if you think the order is taking too long and you decide to cancel it. 

Whether your order will be executed or not is determined on the bid/ask price. The bid price is the highest price that a bidder/buyer is willing to pay to buy the security. The ask price is the lowest price that an asker/seller is willing to take to sell the security. These prices help investors determine an appropriate price for which they can trade their securities at the best possible outcome. Take for example a stock with a bid price of $95 USD and an ask price of $105 USD, bidders will not pay more than what askers are selling the security for ($105 USD) and askers will not sell for less than what the bidders are buying the security for ($95 USD). 

How Long Can Orders Take Before They Are Executed? 

The lengths of the orders are dependent on the order type that is used and the length of time the investor wants the order to remain active. If a market order is used, it will take a few seconds before the order is executed. Other orders have specific options for how long/when they can be active. The first option is called the Time-In-Force. This option allows the investor to choose how long the order should remain active. The two main Time-In-Forces include: 

• Day: When the order is placed, the order remains active until the end of the trading day for the respective stock market (Stock markets in the U.S. close at 4:00pm EST). The order is cancelled if it has not been executed by the time the stock market closes. 

• Good-Till-Cancel: When the order is placed the order remains active until the investor decided to cancel the order themselves. Despite its namesake, the order will automatically cancel if the order is active for 3 months. 

The second option is having the order active outside of Regular Trading Hours. Normally if an order is placed, it will only be active during Regular Trading Hours (Mondays through Fridays, 9:30am to 4:00pm EST for U.S. Stock Markets), the order will not be active outside of those times and therefore will not be executed even if the price is reached by the amount set by the investor. An investor can bypass this situation by allowing orders to remain active outside of Regular Trading Hours, that way they can have their orders executed when the stock market is closed. (Between 4:00am – 9:30am EST and between 4:00pm – 8:00pm EST for U.S. stock markets). 

Note that there are some securities that do not allow trading outside of Regular Trading Hours. For example: stock options are only allowed to be traded during Regular Trading Hours. 

Modifying/Canceling Orders 

Orders (except for Market Orders during regular trading hours) can be modified/cancelled at any time by the investor as long as the order has not been executed. The order can be altered through the following ways: 

• The Order Type used 

• The quantity of stock to be purchased/sold 

• The price of the stock to be purchased/sold (Non-market orders) 

• The Time-In-Force 

• Having the order active after Regular Trading Hours (RTH) 

There are multiple reasons for why an investor may modify/cancel an order: 

• The investor changes their mind about the order 

• The security moved in an unfavorable direction to the investor that forces them to change/cancel their order 

• The order was/became unrealistic 

• The order was incorrect/had a mistake