Which of the following orders instructs the brokerage firm to buy or sell at the current ask or bid value?

Chapter 03 - How Securities Are Traded

Chapter 03 How Securities Are Traded Answer Key

Multiple Choice Questions

1. The trading of stock that was previously issued takes place

A. in the secondary market.

B. in the primary market.

C. usually with the assistance of an investment banker.

D. A and B.

E. B and C.

Secondary market transactions consist of trades between investors.

AACSB: Analytic

Bloom's: Remember

Difficulty: Easy

Topic: Stocks

2. A purchase of a new issue of stock takes place

A. in the secondary market.

B. in the primary market.

C. usually with the assistance of an investment banker.

D. A and B.

E. B and C.

Funds from the sale of new issues flow to the issuing corporation, making this a primary

market transaction. Investment bankers usually assist by pricing the issue and finding buyers.

AACSB: Analytic

Bloom's: Remember

Difficulty: Easy

Topic: Stocks

3-1

A Market order is an order to buy or sell at the market bid or offer price. A market order may increase the likelihood of a fill and the speed of execution, but unlike the Limit order a Market order provides no price protection and may fill at a price far lower/higher than the current displayed bid/ask.

Notes:

The Reference Table to the upper right provides a general summary of the order type characteristics. The checked features are applicable in some combination, but do not necessarily work in conjunction with all other checked features. For example, if Options and Stocks, US and Non-US, and Smart and Directed are all checked, it does not follow that all US and Non-US Smart and direct-routed stocks support the order type. It may be the case that only Smart-routed US Stocks, direct-routed Non-US stocks and Smart-routed US Options are supported.

Create Market Orders Short Video

Using TWS Mosaic

Using Classic TWS

Mosaic Example

Enter the desired ticker symbol and click on the appropriate action to BUY or SELL for your Market order. Note that when SELL is selected the Order Entry background becomes red, while for BUY orders the background changes to blue. Next, enter the number of shares you want to trade. IN this example, since we have an existing position of 11,500 shares in ticker VTI and want to close it out at the prevailing market price, we can simply click on the Position button, which will flow through to the Quantity field. Select MKT from the Order Type dropdown menu. In the case of orders to SELL, by hitting the Submit button, your order will be SMART routed across all available exchanges to locate the most favorable price for your order. SMART is IB's default venue and should you wish to direct your order to a specific exchange, click the Advanced button and select the favored destination.

NicoElNino/Shutterstock

• Sept. 12, 2022 /
• 4 min read

• Sept. 12, 2022 /
• 4 min read

Bankrate Logo

Why you can trust Bankrate

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.

Our investing reporters and editors focus on the points consumers care about most — how to get started, the best brokers, types of investment accounts, how to choose investments and more — so you can feel confident when investing your money.

Investing disclosure:

The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Investing involves risk including the potential loss of principal.

Bankrate Logo

Editorial Integrity

Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.

Key Principles

We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.

Editorial Independence

Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information.

Bankrate Logo

How We Make Money

You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.

Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.

We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.

Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.

Bankrate Logo

Insurance Disclosure

Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

When you place a stock trade, you have two big alternatives for how to get it done: a limit order and a market order. These two order types tell your broker exactly how to execute your trade, and by selecting the right order type, you can save money or even make more money on your trade.

Here are the differences between limit orders and market orders, and when to use each one.

Limit order vs. market order

The distinction between a market order and a limit order is fairly straightforward, but when to use them may be less so.

• A market order instructs your broker to execute your trade of a security at the best available price at the moment you send in your order. If you’re buying, you’ll transact at the seller’s asking price. If you’re selling, you’ll transact at the buyer’s bidding price. The bid and the ask could differ substantially at times, and you have no control over pricing here.
• A limit order instructs your broker to execute your trade only at the price you specify or better. If you’re selling, you will transact only if you can get your limit price or higher. If you’re buying, your trade will execute only if you can get your limit price or less. Often you can set a limit order to be valid for up to three months, though it varies by broker.

Besides these two most common order types, brokers may offer a number of other options, such as stop-loss orders or stop-limit orders. Order types differ by broker, but they all have market and limit orders.

Market orders: Advantages and disadvantages

Each order type can get your trade executed, but one may work better in a given situation than the other. Here’s when you should consider using each type.

A market order works better when:

• You want to get the trade done now, regardless of price. It’s important to note that on thinly traded stocks, this could move the price up or down significantly.
• You’re trading the stock of a large company. The stocks of large companies tend to be very liquid, with the bid and ask prices usually only a penny or two apart. You may get the last quoted price or even better, depending on the market at that moment.
• You’re trading relatively few shares. If you’re buying or selling a relatively small number of shares (think a couple hundred or less), especially on a larger stock, you’re less likely to move the price than if you need to transact on thousands of shares.

However, market orders definitely have some downsides:

• You could move the market significantly. If you use a market order and don’t check the bid and ask prices, you may get a price that’s a lot different from the current market price. This is especially true for thinly traded stocks or smaller stocks.
• You may get a wild price. If you enter a market order outside of normal trading hours, it will execute during the next trading day. If market-moving news comes out in the interim, you may get a much different price than you first intended, if you don’t cancel the order.

Limit orders: Advantages and disadvantages

In many cases a market order will work fine for your needs, but you’ll also want to consider if you need to use a limit order, which offers some other benefits.

A limit order works better when:

• You want a specific price. If you’re looking to get a specific price for your stock, a limit order will ensure that the trade does not happen unless you get that price or better.
• You are able to wait for your price. If your limit price is not the market price, you’ll probably have to wait to have it filled. If the stock eventually does move to that price, the trade can be executed.
• You’re buying a thinly traded stock. Thinly traded stocks can bounce around from one trade to the next, so it can be useful to set a price to minimize your costs. In some cases that might save you 1 percent (maybe even more) of your total investment. That’s a significant cost, and it’s money that could go into your pocket otherwise.
• You’re selling a high number of shares. If you’re selling a high number of shares, even a small change in the price can mean real money.
• You don’t want to move the market (and reduce your profit). A limit order will not shift the market the way a market order might.

The downsides to limit orders can be relatively modest:

• You may have to wait and wait for your price. Because you’re naming your price, there’s no guarantee that the trade will ever execute. Even if the security does hit your price, there may not be quite enough supply or demand to fill your order, though in this situation it’s merely a question of time (usually) until there is.
• Forgotten limit orders may be executed. Because you can put in limit orders for the future — typically valid for up to three months — you could easily forget about an order and wake up one day to a surprise trade. Yes, it will execute at your order price (or better), but you may not have wanted to trade it any longer.

As a practical matter, traders may place limit orders at the currently quoted price just to ensure that their trade doesn’t move the stock price. If the trade doesn’t execute immediately, they may adjust the price up or down to get it to execute more (or less) quickly. While the net effect may be the same as a market order, it ensures the trader doesn’t execute at a wild price.

Bottom line

Your choice of market order or limit order depends on the specific circumstances of the trade, but if you’re worried about not getting a certain price, you can always use a limit order. You’ll ensure that the transaction won’t occur unless you get your price, even if it takes longer to execute.

Written by

James Royal

Senior investing and wealth management reporter

Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more.

Edited by

Managing editor

Which of the following instructs the brokerage firm to only buy or sell at a specific price or better?

What type of order tells the broker to buy or sell stock at the current price?

Which of the following order instructs the broker to sell?

In which order investors buy or sell at the current price going on in the market?