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Understanding different types of orders

Our online trading platform is ideal for quickly and easily buying and selling shares online. But before you get started, it’s important to understand the different types of orders you can place and the options you have for setting the price at which you trade. Find out more about all these in this guide.

01

What are orders?

Orders are simply instructions to buy or sell shares. The most common types of share trading orders are buy and sell orders. You can also place stop loss sell and target buy orders, which are known as trigger orders and are more specialised orders used by advanced share traders.

The basics of an order are your instructions which specify:

  • How many shares you want to buy or sell.
  • The price per share or the price at which you are prepared to buy or sell those shares.

When placing a trigger order, you’ll also choose a trigger price, which we’ll explain a bit later.

But before we look at each of these order types in detail, it’s important to understand your choices when setting your price. For every type of order you can choose to trade at the current market price of a share, or you can choose a limit price. This guide will take a look at these concepts.

02

Market price and limit price

Market price

The market price of a share is the best available price on the market at any given time, and is only an option while the share market is open.

The market price may be different depending on whether you are buying or selling:

  • If you would like to buy shares, the market price is the lowest price that someone selling the shares is willing to receive.
  • If you would like to sell your shares, the market price is the highest price that someone is willing to pay.

If the price you pay or receive is very important to you, choosing market price might not be the best option. Generally, the benefit of trading at market price is that your order should trade quickly.

Limit price

A limit price is different; it’s an instruction to buy or sell a stock at a specific price or better so it gives you more control over the price. It’s the price which you feel comfortable buying or selling your shares. If you are buying shares, a limit sets the maximum price you are willing to pay. If you are selling, a limit sets the minimum price you are willing to receive.

While setting a limit price means you won’t trade outside a specific price range, it does mean that your order may not trade (or execute as it is often called in share trading). For example, if you are buying, your order may be queued behind other buyers depending on the volume of shares available for sale at a specified price. Orders are queued on the market in the order in which they were placed on the market and they can remain queued for up 20 business days. If your limit order doesn’t trade within 20 business days, it will expire and you will need to replace it.

To learn more about order queuing, take a look at our guide on how the share market works.

03

Buy orders

A buy order is the standard order type for buying shares. Your instruction will specify:

  • How many shares you want to buy.
  • The price per share or the price you are prepared to pay for the shares. This can be a specified limit price, which is the maximum price that you are willing to pay, or the market price.

04

Sell orders

A sell order is the standard order type for selling shares. To place a sell order you simply need to specify:

  • The quantity of shares you want to sell.
  • The price per share or the price you are willing to receive for the shares. This can be a specified limit price which is the minimum you will receive, or the market price.

05

Target buy orders

A target buy is a type of trigger order and allows you to control when your order will be sent to the market. This is done by specifying a trigger price; a price at which your order to buy is placed on the market and becomes active. Your order will only be actioned (triggered) if the shares you wish to buy begin to trade at the price you’ve specified.

This trigger price is always above the current market price for that share. Target buy orders are aimed at traders who believe that if the price of a stock reaches a certain level, the share price will continue to rise so they want to buy in and take advantage of that rise.

As well as setting a trigger price for a target buy order, you also need to set a price per share (like you would for a standard buy order) which is the price you are willing to pay for the shares.

You can choose to set a limit price - a maximum price which you are prepared to pay per share. The shares will be purchased at no more than this limit price. Just be aware that if you set a limit price and the market rises quickly, you may miss the opportunity to buy shares if the market moves above your limit price.

Alternatively, you can choose to trade at the market price for that share, but you’ll have no control over the price you pay.

06

Stop loss sell orders

A stop loss sell is a type of trigger order and allows you to control when your order will be sent to the market. This is done by specifying a trigger price; a price at which your order to sell is placed on the market and becomes active. Your order will only be actioned (triggered) if the shares you wish to sell begin to trade at the price you’ve specified.

Stop loss sell orders are designed to stop your loss in the event the price of your shares in a particular company begins to fall and you wish to sell the shares. For that reason, the trigger price is always below the current market price. Traders will use a stop loss order when they believe that if the price of a particular stock drops to a certain level, the share price will continue to fall.

As well as setting a trigger price, you also need to set a price per share (like you would for a standard sell order), which is the price you are to receive for the shares.

You can choose to set a limit price - a minimum price which you are willing to receive per share. The shares will be sold at no less than this limit price. Just be aware that if you set a limit price and the market falls quickly, you may miss the opportunity to sell if the market moves below your limit price.

Alternatively, you can choose to trade at the market price for that share, but you’ll have no control over the price you receive.

07

Things to know when buying shares

When you are buying shares using a buy order or target buy order, there are some things you need to know:

  • You need to have sufficient cleared funds in your settlement account to cover the cost of your order.
  • Those funds must remain in your settlement account from the time you place the order until settlement date, which is the date the trade is complete and the shares are registered into your name as the new owner. For trades on the New Zealand and Australian stock exchanges, settlement date is usually two business days after your trade.
  • If your buy order is executed below the minimum holding requirements you’ll have to either purchase more shares to make up the requirement, or sell your holding. If you need to take one of these actions, you’ll be making a further buy or sell transaction and therefore have to pay brokerage again.

08

Things to know when you are selling shares

When you are selling shares, using a sell order or stop loss sell order, there are some things you need to know:

  • If you’re selling New Zealand Stock Exchange (NZX) stocks you need to have a Common Shareholder Number (CSN) and a Faster Identification Number (FIN), which is sometimes known as an authorisation code. Your CSN and FIN identify you as owner of your shares, and enable us to check that you own the shares you are placing an order to sell. Please keep your FIN safe as we don’t store this, and make sure you know your FIN before you place a sell order.
  • If you’re selling Australian shares, as an ASB Securities share trading client you’ll automatically have a CHESS account opened for you, which allows you to trade on the Australian Stock Exchange (ASX).  CHESS stands for Clearing House Electronic Subregister System and is the computer system used by the ASX to manage share ownership and settle trades.
  • You must make sure that you only sell stock that you own and that you have available through your ASB Securities share trading account.

More about sell orders

  • If you choose to sell only some of your shares in a particular company and you continue to hold some shares, you need to ensure that your left-over holding meets the minimum holding requirements. If it doesn’t, you may have to either purchase more shares to make up the requirement, or sell your remaining holding. You’ll need to pay brokerage and any associated costs with buying the additional shares or selling your remaining holding.
  • If your sell order trades but you don’t own sufficient shares to cover what you’ve sold, this is called short-selling. Short selling is not allowed by ASB Securities. If this happens we may buy back your holding at any time and you’ll be responsible for brokerage, losses and any associated costs. You’ll also forfeit any profits.
  • You must have an ASB Securities share trading account to sell shares; you can’t sell on behalf of someone else.

09

Information for all orders

  • Your order will be valid for 20 business days, after that, it will expire. If you wish to continue with your order after 20 days, you’ll need to place a new order.
  • When you buy or sell shares you’ll pay a fee or commission, this is called brokerage. ASB Securities brokerage rates vary depending on what kind of shares you are buying and selling. For example, New Zealand, Australia and other international shares all have different brokerage rates.
  • Be aware that sometimes there may be a delay in confirming your order and it being placed on the market; this can happen if the market is busy or systems are slow or offline.
  • Sometimes ASB Securities may act for both the buyer and the seller in a transaction, and these orders may be crossed. This means that if we receive a buy order and a sell order for the same shares at the same price from two different clients, we may offset the two trades between buyer and seller directly, instead of putting both the buy and the sell order onto the market. We’ll disclose these crossed trades to the New Zealand stock exchange either that day or the next morning before the market opens.
  • The New Zealand Stock Exchange closes at 5pm. If we receive your order to buy or sell shares on the New Zealand stock exchange (NZX) after 5pm, or after 6pm for the Australian Stock Exchange (ASX), we’ll treat your order as though we had received it the next business day and your order will be placed on the market when it opens.
  • If you’ve placed an order and there is some breaking news regarding the company, i.e. if it announces a merger with another company, or a stock split, or a dividend payment for example, we may cancel your order. Corporate actions such as these may affect the value of the company whose shares you are trying to buy or sell, so we’ll always try and contact you first to check whether you wish to continue with your order.

10

Why we might not accept an order

Sometimes we may not accept your order. There are a number of reasons for this, which may include your specified price being too far away from the current market price, or if the security you want to buy is not available because it is suspended, halted or delisted.

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ASB Securities Limited is a NZX Firm. ASB Securities terms and conditions apply. The above information is a guide only and should not be relied on as it does not take into account your personal financial situation.

ASB Securities Understanding different types of orders