Jumping into a fast market? Here are 3 types of trades to consider

Certain types of investment orders can help you keep your cool during market volatility and ensure that you don’t get any surprises in the price you pay for a stock.

At J.P. Morgan, we believe investing for the long-term is best to help you reach your goals without letting your investments distract you. But for investors who want to participate in fast markets, we offer different kinds of orders to help you trade the way you want.

What are market orders?

Placing market orders means you are asking to buy or sell a stock at the best price your broker can immediately get during regular market hours of 9:30 a.m. to 4 p.m. The simplest, most common type of order, it can be beneficial to traders who want immediate trade execution. A market order offers the most certainty that your trade will be executed – because you are agreeing that it will be executed at any price. But simple doesn’t mean risk-free.

But wait … Market orders always include the risk that the price of the stock will change between the time your order is placed and the time it is bought or sold in the market. Prices can change in less than a second, especially in a fast-moving market. So you could place an order to sell a stock when it appears to be trading at $50 per share, but the price could move to $45 per share by the time it is executed in a fast-moving market. Market orders are typically filled quickly, so they can’t be canceled.

Also, market orders placed before or after regular market hours will be placed in a queue for execution at market open. News that evening or before market open might impact the price of that stock. That means if the market closing price is $50, but the stock price moves to $100 at the market open, you will pay $100 for your stock.

What are limit orders?

A limit order gives you more price certainty – it allows you to buy or sell a stock at a specific price or better. It’s a good option for someone who knows the price they’re willing to pay and wants to limit the risk that they spend more money on a stock than they intended. For example, if you place a limit order to buy a stock at $100, you will never pay more than $100 per share. But that doesn’t mean you’ll actually buy the stock.

Say what? A limit order is not guaranteed to execute. Say you place a limit order after the market closes to buy a stock for $100. If the price of that stock opens and stays above $100, your order will not be executed.

What are stop orders?

A stop order is an order to buy or sell once a stock hits a specific price during market hours, but it turns into a market order as soon as that price is reached. Think of that price like the whistle at the start of a race; your broker will move quickly to get you the best possible price from that point on.

But … remember that a stop order turns into a market order once the stop price is reached, meaning you won’t be guaranteed to buy or sell at the stop price. For example, in a sell stop order, once the stop price is reached, a trade is likely to execute, but you could end up selling the stock for less than your stop price. You can control for this risk by combining a stop order with a limit order, which won’t guarantee your stock will be sold or bought, but will ensure you get the price you want.

Read more about other types of orders and key terms on our FAQs.

Delays in trade execution

Trade volumes are high in a fast market, which could delay the execution of a trade or trade report. Before placing duplicate orders, consider the chance that your trade order has already been executed but not yet reported. You wouldn’t want to accidentally place multiple orders.

Know your tolerance

Trading in markets always presents risks, no matter what type of order you place. And always take the time to understand the fundamentals of a particular stock before investing. All J.P. Morgan Wealth Management clients have access to our equity market research.

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