What are market, limit and stop orders? What is “Time in force”?
Market order: Market orders are the fastest way to buy or sell an asset. You buy or sell at the best available price, without specifying a particular price. The matching engine will execute the trade immediately, matching your order with existing orders on the book. In the case that your trade is large enough to match with multiple orders, you will end up paying an average market price.
For example, say you wish to buy 50 NEO at a price of 10 USD, but there are only 10 NEO currently for sale at this price. If you place a market buy for 50 NEO, the matching engine will match your order with the 10 NEO for sale at 10 USD, but will then proceed to match the remaining 40-NEO portion with those orders at the next-best available price above 10 USD. If 40 NEO are available at 11 USD, this means you will pay a total of (10 * 10) + (40 * 11) = 540 USD, giving an effective average price of 10.80 USD.
If there are a small number of other orders on the book (low market depth), market orders will result in more volatile average prices than if there are many orders on the book. Market orders are hence generally used for high-volume and liquid assets.
Limit order: A limit order is an order to buy or sell an asset at a specified price. This type of order gives the trader more control over the price of execution. The exchange executes the order only when the price of the asset is at/below the specified price (limit buy order) or at/above the specified price (limit sell order).
For example, if a trader is looking to buy NEO at a limit of 10 USD, the exchange will only execute this buy order when the price of NEO is at 10 USD or lower.
The time for which a limit order remains active on the book is described as its time in force. There are four types of time in force available on Nash:
Good ’til canceled: Your order will remain on the book indefinitely – either until it is filled or until you cancel it.
Good ’til time: Your order will remain on the book until the time you specify. If it has not been filled by that time, it will be canceled.
Fill or kill: If your entire order can be filled immediately, then it will be. If it cannot be filled entirely, then the whole order will be canceled.
Immediate or cancel: However much of your order can be filled immediately will be filled. Whatever portion remains unfilled will be canceled
Stop-market order: A stop-market order is a conditional order to buy or sell an asset at a price not on the market yet (the “stop price”). When the price of the asset reaches or exceeds this price, the trade will be triggered as a market order.
If you place a stop-market sell order for NEO at 10 USD, the exchange will execute this trade only when the price of NEO is at 10 USD or higher. If the price of NEO is at 9 USD, the trade will not execute. When the price of NEO reaches 10 USD, the exchange will execute the trade as a market sell order. If the order book is not deep enough to execute the entire trade at 10 USD, the matching engine will find the next best available price below 10 USD.
Stop-market orders are generally used by pattern/directional traders. A stop-market order is generally used by traders to reduce risk, but it could potentially result in higher loss if the execution price is much lower than what the trader was expecting (in the case of low market depth).
Stop-limit order: A stop-limit order consists of a stop price and a limit price. When the stop price is reached, a limit order will be placed on the book at your specified limit price.
For example, say the price of NEO is above 10 USD, but you believe the price will fall and you wish to invest at a lower future price. If you assume that the price will fall as low as 8 USD, you could use a stop-limit order with a stop price of 8 USD and a limit price of 9 USD. When the price of 8 USD is reached, your limit order at 9 USD will be placed on the book. Your limit order will now be able to match with all orders selling NEO at prices at/below 9 USD.