How Do I Know Which Stock Trading Order Type to Use for Basket Trading?Apr 01, 2022
If you’ve read our blog, you’ll be familiar with the investment strategy of basket trading and how it may increase your Odds in the market. You’ll also know that there are numerous ways to specify an order and execute your trades. It’s time to dive into the ways both at-home traders and professionals alike can help increase their Odds by knowing the common order types and how they work — especially when using the basket trading strategy.
Common Order Types
It may seem straightforward, but it’s important to get some definitions down. An order is how traders buy or sell their securities in the market. It can outline certain parameters or conditions under which these trades can execute, generally surrounding the price of the security. Different trading strategies may require different order types. There are four main kinds:
A market order is used to purchase or sell a security immediately. There are no conditions surrounding the price, so it offers little control. While the order may seem to get filled immediately, providing the trader instant gratification, the fill price may not be the best available.
There are two subcategories of limit orders: buy limit orders and sell limit orders. These offer more control over pricing, as the trader sets their desired execution limit. For buy limit orders, the trade can be filled at the set limit price or lower. For sell limit orders, the opposite occurs: the security can sell at the set limit or higher. As far as price improvement, this is very rare…most limit orders fill at the set price even in fast market conditions.
Sell Stop Order (Stop-Loss)
Also known as a stop-loss order, a sell stop order sets a specific price as a boundary for when to sell. Traders specify the stop price on the stock they are long, and when the chosen security reaches that price or moves through it, a sell market order is generated, and it will execute at whatever price is available based on the available liquidity in the order book.
Buy Stop Order
Things get a little more in-depth when it comes to buy stop orders. The typical trading strategies here are that investors get to limit a loss on a stock that they’ve sold short, or trade momentum when a security is trending up or breaking out. Traders pick a strategic price above the current market value, and when the chosen security reaches that price or higher, it turns into a market order and executes.
Limit Stop Orders
Buy or Sell Stops can also be instructed with Stop Limit. This means that the order becomes a fixed limit order at the set price, instead of a market order. The risk with this is that the price is traded through and continues to trend, and your position would not get unwound. There was no actual stopping of the loss. Due to this, to fully protect your capital and get you a guaranteed out, we recommend using stop orders with market orders.
Order Duration (Time in Force-TIF) Types
In addition to the type of order, an order duration, or time-in-force, needs to be specified. There are a few common types of order durations to choose from:
This is the most common order type for traders. It applies the order to the regular day session only. A Day order can execute in the pre-market session. At core session close (4pm ET) any unfilled Day orders are canceled. A Day order cannot execute in the Extended Hours or After-Hours session.
TIF can vary from platform to platform, broker to broker. For instance, Interactive Brokers offers a TIF modifier for Day orders to execute Outside Regular Trading Hours, as mentioned below at point 5.
This is an order for the core (day) session only. It cannot execute in the pre-market session. You can place this order prior to the open similar to opening only orders without concern for the order being filled in the pre-market.
Good till Canceled (GTC)
This order duration is also fairly self-explanatory. For GTC orders, it will continue to operate on the exchange until canceled. If the order is partially filled on a particular day, the remaining quantity will stay a limit order so that it has the opportunity (but not the guarantee) of being completely filled. If left unfilled and unchanged for 90 days or more, brokers will typically cancel the order automatically. Note that not all brokers support GTC orders.
Good till Date (GTD)
Again, a limit order by design and similar to the GTC order above, the order will remain active for multiple days, until the date specified by the trader when submitting the order.
Outside Regular Trading Hours (RTH), or Good till Extended Market (GTEM)
Outside RTH, or GTEM orders are sometimes selected as their own duration, or a modifier to a Day or GTC order, allowing traders to execute trades in the premarket or extended hours session, which starts at 4:00am EST and goes until 8:00pm EST in the case of the ARCA exchange. With some platforms such as those from Interactive Brokers, if the primary order type is selected as Day, this type of order will cancel at the close of extended hours session which is 8:00pm EST.
OPG orders will execute only at the market open (9:30am), and may be applied to market or limit orders, in most cases. OPG orders must be submitted before 9:28am EST, as seen below with MOO and LOO orders. If the order is not filled it will cancel automatically so the trader does not need to cancel it.
Immediate or Cancel (IOC)
IOC orders aim to fill immediately during the day session at a specified limit price, if no stock is available, the order will be canceled. If the trader receives a partial fill, the remainder of the unfilled order will be canceled.
Fill or Kill (FOK)
Similar to IOC orders, FOK orders must fill immediately, but they must be filled in the entirety of the order request, or it will be automatically canceled.
The Best Beginner Basket Trading Order Types
If you are new to trading or new to the strategies of basket trading, here are some of the most convenient order types to execute with. These should be used in conjunction with other strategic tools, such as some of our StockOdds Dashboards, to help you increase your Odds of using this order type effectively.
What makes the following order types ideal to start out with is that that the orders are market orders. You do not have to set a limit price to enter or exit the trade. Market orders will get you in so you can focus on strategy outcomes, whereas limit orders are discretionary, and you can miss getting orders filled.
Market on Open (MOO)
MOO is an “opening only order” that participates in the opening auction for which all orders in that security execute in a single opening print.
To execute a MOO, traders submit their orders by 9:28 a.m. EST — about two minutes before the day session opens. Before this time, the MOOs can also be amended or canceled. Depending on the number and nature of all opening orders in the order book for that security the opening price is adjusted, and the market day begins. On some broker platforms, MOO orders may be specified as market orders with “OPG” for the time-in-force.
Market on Close (MOC)
As you might have guessed, this order type executes at the core (day) session market close.
This type of order is used for a guaranteed way to close positions via the closing auction for the day.
How do they work? Traders place their MOC before the deadline (3:45 p.m. EST for NYSE listed stocks and 3:50 p.m. EST for Nasdaq listed stocks). You can place this order any time of day up to the deadline without a concern for getting filled prior to the closing auction. Note that some stocks take a while to close (after the 4:00pm EST bell) as the order book has to be balanced by the Designated Market Maker (DMM).
Other Order Types
Limit orders are more complicated, as they require setting conditions for your order to execute under. We have plenty of tools that can help you increase the Odds of setting the right price for your orders, but it takes practice with our different dashboard, data tools and filters, as well as some deeper market knowledge.
The important thing to note with limit orders is that if the price limit is not met, the order will not execute.
Limit on Open (LOO)
Like MOO orders, limit on open orders execute at the opening print of the day. You set your limit price for a buy or sell, and your order will be filled if the opening print is at your price or better. It is possible to receive only a partial fill and not your full order if the open print is exactly your price.
If it opens better than your limit price, you will receive the entire fill. Better refers to lower than your buy order or higher than your sell order. If not filled, the order is canceled.
LOO orders are sometimes specified as a Limit OPG orders with some platforms.
Limit on Close (LOC)
The sister to LOO orders is, of course, a limit on close order. This order type can participate in the closing auction without getting filled ahead of time. The caveat is that you may not be filled. The closing price would have to be at your limit or better for you to be filled on your
LOC order. You might receive a partial fill if the closing price is exactly your limit price.
This order type enables trading strategies that allow investors to close positions at the end the day by having more control over the buy or sell price of their security. You could also open a new position if you wanted to swing trade and take the position overnight.
LOC orders must be placed ten minutes before closing on the NYSE market (3:50 p.m. EST) and two minutes before closing on the Nasdaq (3:58 p.m. EST). If they aren’t executed as the market closes, they cease to function and will be canceled.
Finally, there’s also a stop-limit order, which combines limit orders with stop orders. Investors select their stop price, but rather than turning into a market order and executing automatically when the price is reached, there’s a limit price selected as well.
For example, if a security is trading at $10.00 and a buy stop-limit order is submitted with a stop price of $11.00 and a limit price of $11.01, when the security reaches $11.00 (or higher), the limit order will execute and buy available shares on the offer, up to $11.01. On the other hand, if the buy stop order is set $11.00 and the limit order is set at $10.99, the market price of the stock must reach at least $11.00 before the limit order of $10.99 is submitted.
OCO is an order modifier, to conjoin two other order types. For instance, with this condition added to a stop order plus a limit order, if one order execute, it automatically cancels the other order. In this example, if one is in a long position with a security trading at $10.00, an OCO order can be submitted with a (sell) stop at $9.00 and a (sell) limit at $11.00. If the security then trades at $11.00 or above, the limit order will execute and cancel the stop order. However, if the security breaches $9.00 or below, the stop (market) order will execute and cancel the limit order. This combination of orders is sometimes referred to as a bracket order, where traders submit orders to execute if a security trades above or below a bracket threshold.
There may be other order types not listed here that brokers and platforms have. Some brokers are platform agnostic, so you can choose your own, while other brokers have their own selected platform, or one developed in-house. This means that entitlements can vary, and we encourage traders and investors alike to research many, to find the one suited to their needs. You may find that your current broker and/or platform does not have many of the listed order types we presented. There are other conditional order types that exist so do not consider our list above as complete, but rather as a starting point.
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