Lesson 6 of 7 · 14 min
Orders: execution, validity and clearing instructions
Every order states what, how much and which side; execution instructions say how to fill it, validity instructions when it may fill, and clearing instructions how it settles; market orders trade fast at uncertain prices, limit orders protect price but may not trade.
In short
- Bid = price at which someone will buy; ask/offer = price at which someone will sell. Best bid and best offer define the market; the gap is the bid-ask spread.
- Market order: best price available now; fast, but price uncertain. Limit order: best price available, but never worse than the limit; may not fill.
- A buy limit above the best offer is marketable; between bid and offer it makes a new market; at the best bid it makes the market; below it is behind the market.
- Validity: day, good-till-cancelled, immediate-or-cancel (fill-or-kill), good-on-close/open, and stop orders, which become valid only after a trade at or through the stop price.
- Clearing instructions say who settles (e.g., a prime broker) and, for sells, whether it is a long or short sale.
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