Key Trading Orders Explained

Market order: A market order is the most basic type of order, and it is used to buy or sell a security at the current market price. When you place a market order, your trade will be filled at the best available price, but you have no control over the exact price at which your trade will be filled.

Limit order: A limit order allows you to specify the maximum price you are willing to pay to buy a security, or the minimum price you are willing to accept to sell a security. For example, if you place a buy limit order at $100, your trade will only be filled if the ETF is available at $100 or lower.

Stop order: A stop order is used to limit losses or protect gains on a trade. For example, if you buy an ETF at $100 and want to sell if it drops to $90, you would place a sell stop order at $90. Once the ETF drops to $90, the stop order becomes a market order and your trade will be filled at the best available price.

Stop-limit order: A stop-limit order is a combination of a stop order and a limit order. It allows you to set a stop price, as well as a limit price. Once the stop price is triggered, the order becomes a limit order, which means that your trade will only be filled at the specified limit price or better.

Trailing Stop order: A trailing stop order allows you to set a stop price that “trails” the market price of a security by a certain percentage or dollar amount. This means that as the market price of the ETF increases, the stop price also increases, but if the market price drops, the stop price remains the same. This allows you to lock in gains while limiting your potential losses.

It’s important to note that no order type can guarantee a specific fill price or guarantee execution. It’s also important to understand the specific mechanics and restrictions of the orders offered by your brokerage firm.

When you buy shares of an ETF, you are essentially buying a small piece of the underlying assets that the ETF holds. The value of your ETF shares will rise or fall depending on the performance of the underlying assets. For example, if the ETF holds stocks and those stocks go up in value, the ETF’s value will also go up. Conversely, if the underlying assets go down in value, the ETF’s value will also decrease.

ETFs offer investors a way to diversify their portfolio and gain exposure to a specific market or sector with a single investment. They also typically have lower expense ratios than actively-managed mutual funds.

ETFs can be bought and sold on the stock exchange just like stocks, and the shares can be held in a brokerage account. ETFs may also be bought or sold through a financial advisor.