Order types explained

Overview

DriveWealth makes available the following order types:

• Market
• Limits (GTC & GTD)
• Stops (GTC & GTD)
• Market if Touched (GTC & GTD)

Each of these order types carry their own individual requirements defined in the below sections.

Order types explained

Market Order

Market orders are submitted immediately to execution venues (assuming the security is actively trading) and carry the highest priority. Provided there is sufficient liquidity to fill the order, customers can expect very fast execution, but without any guarantee of price.

The bid or ask the customer sees when placing the trade is an indicative price only, and due to the fast-moving nature of the market, the actual executed price may differ.

Limits

Unlike market orders, limit orders have a guarantee of price if filled. To achieve this, an order for a quantity and specified price is sent to an exchange or market maker to be later paired with a buyer or seller also willing to transact at that price. There is no guarantee that the order will be executed—for example: if a customer wants to purchase stock at $100/share, they may not ever receive a fill if the security continues to trade around $120/share.

Buy orders are created with a price below the current ask, and sell orders are created with a price above the current bid. It is possible for the customer to receive a price better than requested. Limit orders can also be set to expire up to 90 days from the date of creation.

Because limit orders need to rest in an order book at a market maker, limit orders accept whole-share quantities only.

Stop & Market if Touched

Stop orders and market-if-touched orders have very similar functions: they both create market orders when a condition has been reached.

Like limit orders, these order types require both a quantity (or dollar amount) and a price. Unlike limit orders, this price is not a guarantee. Instead, it is a triggering price which, upon the security trading at, dispatches a market order to buy or sell the requested amount.

The trigger prices should be set according to the following:

• Buy stop: If lastTrade >= trigger price
• Buy market-if-touched: If ask <= trigger price
• Sell stop: If lastTrade <= trigger price
• Sell market-if-touched: If bid >= trigger price

Market-if-touched orders share the same side of the current price as limit orders. Because of this, they may be considered an alternative to limit orders when fractional orders are desired (keeping in mind the lack of guaranteed price).

To provide a simplified approach to choosing an appropriate order type, consider a workflow that guides the customer similar to the below:

• Buy now — (market order)
• Buy if price goes up — (stop order)
• Buy if price goes down — (market-if-touched order)