Stock Market Fundamentals: Stock Order Types | Sumeet Sinha, MBA | Skillshare

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Stock Market Fundamentals: Stock Order Types

teacher avatar Sumeet Sinha, MBA, Helping You Make Better Decisions

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Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

10 Lessons (51m)
    • 1. Course Introduction

      1:17
    • 2. Please Read This Before Continuing

      0:40
    • 3. How The Stock Market Works

      4:34
    • 4. Market Orders

      3:39
    • 5. Limit Orders

      7:00
    • 6. Stop Orders

      5:39
    • 7. Stop Limit Orders

      6:25
    • 8. Trailing Stop Orders

      6:27
    • 9. Trailing Stop Limit Orders

      3:12
    • 10. Market Makers

      12:18
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About This Class

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Are you curious about the following:

  • How the stock market works?
  • How the stock exchange manages to match the buyers against the sellers?
  • How is the price of the stock changing every second?
  • What can you do to get a better control on the price of stock you want to buy or sell?

Have you been wanting to learn more about the different types of stock buy and sell orders available to investors? You are in luck! We have created a course that is perfect for anyone who wants to know all their buying and selling options, their advantages and disadvantages.

With well paced lectures and whiteboard sessions, this course "Stock Market Fundamentals: Stock Order Types" will be a cakewalk for you.

There are no prerequisites for this course, except knowing what a stock is :) Bonus points if you have traded stocks before.

By the end of course, you will know the fundamentals and use cases of different types of stock orders like the back of your hand and will be able to use them in real life wisely.

The course includes video content worth less than an hour, broken down into 8 lessons. We will cover the following topics in the course.

  • How the stock Market Works
  • What is a 'Bid' Price and 'Ask' Price?
  • What is a 'Spread'?
  • What is a 'Market Order'?
  • What is a 'Limit Order' and what are the pros and cons and use cases for limit orders?
  • Stop Price - how does it work when you want to buy or sell shares?
  • Trailing Stop Orders - What are the benefits of letting a price difference determine the buying or selling price of a stock?
  • What is market liquidity and why does it matter?
  • Who is a market maker and what is its role?

See you in the course!

Sumeet Sinha, MBA

Meet Your Teacher

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Sumeet Sinha, MBA

Helping You Make Better Decisions

Teacher

I am Sumeet, and I started the website Finpins.com – be finlightened (finlightened is a word I coined by combining the two words – finance and enlightenment) in 2019 out of a passion to empower more people with the right knowledge on finance.

The more I talk to people, the more I am shocked to learn the state of financial awareness. I reflected back on my own life and realized that there’s little to no formal education provided in schools (and even colleges) regarding apparently the most important aspect of an adult life – finance!

 

Holding on to credit card debt at 18% interest rate while keeping cash in savings account at 0.01%?

Not funding your retirement account when employer gives away free contribution match?... See full profile

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Transcripts

1. Course Introduction: Have you made a purchase on Amazon recently? Did you pay a fixed price or were you able to negotiate the price with decentered? What about eBay? You always have to pay the fixed price, or can you place a bid for something you really want to buy? How about bidding on a domain on GoDaddy there you can place an initial bit and then adjust your bid upwards by a fixed increment until you reach your maximum willingness to pay. Similar to Amazon, eBay, and GoDaddy, even in the stock market, we have multiple types of stock order that you can't lace or buying or selling shares. In this course, we will go beyond the generic market by and cell types and we will dive deep into limit orders, stop limit orders, and stop orders. We will also understand the mechanics of a stock order execution, how the orders for buying and selling the shares are matched. And we will also talk about market makers and their importance in maintaining liquidity in the stock market. This course is perfect for anyone who wants to get a better understanding of how stock orders are executed. And for anyone who wants to go beyond the generic market buy and market size button on their app. So let's jump right in. 3. How The Stock Market Works: Before we dive deep into the different types of stock orders, Let's try and understand how a stock order is actually executed. So when we see this price here, for example, on Yahoo Finance, that Apple stock is trading at 156.81. What exactly does it mean? The stock market has two sides. One is the buyer side and the other is the seller side. On the buy-side, Let's say there is a guy who wants to buy the shares at $156.5. And on the selling side, there is a person who is willing to sell the shares, add $157. The trade generally happens between these two prices. So here in this case, the trade would generally happen between 156.5 and 157. In some cases, there would be a buyer who is willing to pay this $157 price. And in some cases there might be the seller who is willing to come down to 156.5 to make the transaction happen. But in general, there is a number in between these two numbers where Detroit actually happens when a buyer places a buy order and tells a price at which he or she is comfortable buying the stock. That price is called the bid price. So here 156 0.5 is the bid price that the buyer has placed. And for the seller, the price at which they are comfortable selling their shares is called the asking price. The difference between these two numbers, that is the bid and the ask, is called the spread, which is $0.50 in our example. So $0.50 is the spread. Now this is a very simplified example in which there is just one buyer willing to buy one share and there is just one seller willing to sell one share of this stock. Generally there are thousands and thousands of buyers and there are thousands and thousands of sellers. In that case, what the exchange does is it stacks all the buyers orders or the bid prices in this fashion. So let's say there is some person who is willing to pay 156.25. There is some person who is willing to pay 156.22, and there might be thousands of people placing orders with their bid prices. Similarly, on the selling side, there might be some other sellers willing to sell the share at, let's say 157, 0.25. There might be sellers willing to sell the shares at 157.5. And likewise, there might be thousands of sellers willing to sell their shares at higher price points. So the exchange stacks the bid prices in descending order. So here the prices are going up and it stacks the asking prices in the opposite order. So the prices increase as we go down. And here at this point they try to match the buying and selling orders and try to make the trade happen. Another thing to note here is that there might be 100 orders at this price point. There might be 500 orders at this price point, there might be 20 orders at this price point. And here the numbers can be totally different. So let's say there is a seller willing to sell only ten shares at this price point, there might be 500 people willing to sell their shares at this price point, there might be just one person. So the job of the algorithm that executes the trade is to match these bid orders and their quantities against the sell orders and their quantities. And this is how the trades happen on the stock exchange. So this is essentially how trades are executed on the stock exchange. Or popular stocks such as Apple or Amazon. This spread here will be closer to $0.01. And for some not so popular stocks, the spread can be a lot higher. It can be $0.50, it can even be a dollar or more. So the stocks that have very high volume of grade, they're called liquid stocks because the spread is low and you can easily buy or sell your shares. And the not so popular stocks that have low volume trades, they are illiquid stocks. So it might be difficult for you to exit your position because you are not getting the right price. So let's say the stocks do not trade very often and the spread is like $2. And maybe that is not the price you want to fetch when you are selling your shares. So liquidity is also a very important factor to consider when buying or selling shares. 4. Market Orders: So let's take a look at market orders. Here on the screen we have the Apple stock and the price quote here is $159.26. Here we see the bid price and here is the asking price. The highest bid at this point is $159.24. And there is a bit of 200 shares at this particular price point. The lowest asking price at this time is $159.27. And there are 800 shares of Apple stock available at this point. So here you would notice that the spread, that is the difference between bid and asking price is just $0.03. So here at this point, if I place an order, most likely I will be able to buy the shares at around 159.27. Or if I'm selling my shares, I would be able to sell my shares at $159.24. So on average, our trade would happen somewhere around this particular price point off 159.26. The good thing about market orders is the speed of execution, since we are not specifying a particular buying or selling price, whatever prizes available in the market, the trade will get executed. So high speed of execution is an advantage. The disadvantage here is the low control on the order execution price. Market orders are good for high trade volume liquid stocks. Apple, for example, is a very high trade volume stop and lot of people want to buy and sell the Apple shares. So placing a market buy or a market sell order on the Apple stock might make sense. However, market buy or market sell orders are not recommended for volatile stocks. Stocks that have a wide bid-ask spread. What do I mean by that? So let's say you found is talk which is very vaulted. Let's say you just got a hot tip from a friend who said The stock is gonna go up or you found a stock on social media site. And let's say this talk is just climbing up. And at this point you saw that the stock price is $50. And you go ahead and place a market buy order by the time the buy order gets prioritized on the exchange, maybe the stock price has now moved up to $55. Since this is a very volatile stock, the price movement can actually change the buying price between what you initially taught you with wide for and what you actually end up buying it for. Similarly for stocks that have a wide bid ask spread, let's say the bid price and the ask price are the following. Someone who is bidding $50 for buying the stock. So this is the highest bid and the lowest ask for selling the stock is $54. So here you see the ask and the bid price on the app. And here the spread is $2 as opposed to just $0.03 in case of Apple, right? So this price here that you will see most likely would be $52. So you would think that you are getting the stock or $52. But if you place a market buy order, most likely you would end up being more than 52 daughters, closer to 53 or even $54. So in cases of very volatile stocks are stocks that are not very liquid, market orders may not be the best way to go. 5. Limit Orders: Now let's move on to limit orders. In a limit order you can specify a buying price or selling price, and the exchange will only execute your buy order if you're getting a price that you've specified or better, which is lower. And while selling the exchange will only execute your order if you're getting a selling price that you have specified or higher. Now let's take a look at how that might work out. So let's say you own a 100 shares of stock and the stock is currently trading at $98. You bought the stock at, let's say $70 and you are comfortable selling it at $100. So if you sell a market sell order, the order will get executed somewhere here, close to 98 because that is the current market price. However, since you want a price of 100 or higher, you can set a limit sell order with a limit price of $100. So let's say the stock fluctuates a little and then it goes up, and then it crosses this $100. So here, at this point when the Exchange see is that they can execute your order at a price of 100 or better, then they will sell your shares at this point. So here you might end up getting a price of a $100, or in some cases even higher. The good thing about limits and order is this. Suppose this stock comes here and hits the price of a 100, but the exchange was able to sell, let's say, only 20 shares at this point, and then the stock dip further. So the exchange will wait for the stock price to come back to a 100 before they start executing the remaining 80 shares that you have. So let's say later in the day, the stock again touches a 100, maybe the exchange can sell now 50 shares and then it dips again and, and later again the stock comes here and hits a 100, and then maybe they are able to sell the remaining 30 shares. The exchange will ensure that the minimum selling price you are fetching is a $100. Now let's take a look at a case of buying a share with limit order. So let's say there's a news article that says that Amazon may purchase a particular smaller company, okay? And their stocks have just gone up. So let's say at their stocks are currently trading at $120, okay? And the stock is continuing to climb, but you think that this frenzy will die down and it will come back down sometime in the future, either today or in a few days, and you're comfortable paying a maximum of $100 for this particular share. So you decide to wait out for this frenzy to die down. And this is your expectation. And let's say you are proven right? And in a few hours the stock price starts falling and it comes down and it goes below $100 here. And then at this point, the exchange will execute your order and give you shares at a buying price of a $100 or better, that is a $100 or lower. So by using limit orders, you get high control and order execution price while selling your shares, you were able to tell the exchange that you want the price to be $100 or higher. And while buying, you were able to tell the exchange that you are willing to buy the shares at a $100 or lower. So you get very high control on the order execution price. Now coming to speed of execution, It could be either low, medium, or high, depending on the limit price you decide to set. And what do I mean by that? So let's say the stock is here at 98 and you decide to set a limit sell order of $110. So it might take this talk quite a while before it goes and hits a 110 for the exchange to execute your order. So in that case, your speed of execution is going to be very low. If you set your limit sell order here at a 100, it might take a few minutes or even a few hours, but the stock price to climb from 98 to a 100 for the execution to happen. Let's say you set a limit, sell off $98.5, then maybe in the next few seconds or a few minutes, your order will get executed. So depending on the limit price you are setting and how far it is from the market price. Your speed of execution can vary from low to high. And it seems stands for limit buy orders. Limit orders are recommended for volatile stocks are stocks that have wide bid ask spread. And we have seen in the previous lecture what we mean by a wide bid-ask spread and why it would be a good idea to say, okay, this is the maximum I'm willing to pay while buying a share. And this is the minimum I am willing to get while selling my shares. That will ensure that, you know, even though you see a particular price in the app, you ensure that you get the price that you want, even though it is recommended for volatile stocks, limit orders are also a great choice for high trade volume liquid stocks. Even with the great advantage of price control on stock, our execution limit orders come with a caveat. If the limit price is not met and is stock continues its trend in an unfavorable direction, your order may not get executed. And what do I mean by that? So let's say this stock here is at 98 and you bought it at $50. And you would be happy if the stock sells at $100 and you set a limit set of $100. And for some reason, let's say there is a company-specific news or there is a market-wide news that causes the stock to actually start going down, right? And let's say you are not tracking the price of the stock and the stock continues to plummet and it plummets from 98 to, let's say, back to $60. Okay? And since the stock price never actually got to 100 and it always stayed below 100, order for selling the shares at a 100 will not get executed and you might end up missing on the chance to sell the shares at 98. And you don't really know when the stock price is going to recover, right? So this is at risk here that you need to be cognizant off. Similarly, when you are buying the shares, let's say, let's take the same example. This company that Amazon was acquiring, it is at 120 and it continues to rise and instead of the frenzy dying down and stop coming down, the star continues to grow because you know, there are some more positive news or there's like new optimism about the company. And it goes on and it clients, let's say, and goes to $150. And you have set a limit price of $100 or buying this share. And now the current market price is 150. So here you are missing out on buying the stock at like 120 dollars simply because you wanted to pay only a 100. But the now the stock price is at 150. So you just missed out because the stock continued to move in a direction, which is unfavorable for your particular situation. So now this is a caveat that you need to keep in mind for limit orders. 6. Stop Orders: Another important type of orders you can place in the stock market is a stop order. Stop orders can be used to both buy and sell shares. So let's see how a stop order works. Let's see how we can use stop orders while selling a share. So let's say there is a stock which is trading at $100. And let's say you want to sell it if the stock price falls by 20% or more, or maybe because you think there is a stock market crash happening. Or you think if it falls below 20 percent, it's going to fall further and not recover. So to predict yourself from the downside, you can set a stop order. So you will place a sell stop order, also popularly known as a stop-loss order. And let's say you want to put it $20 below the current price, so your stop-loss order is at $80. Now what happens is if the stock price is above 80, then it is business as usual, you continue to hold the stock. However, in case the stock price starts falling, and if it comes down to $80 at this point, which is the stock price, this stop-loss order will trigger a market order to sell your shares at this point. So this $80 or the stock price is simply the trigger point at which your stop-loss order will get converted into a market sell order. So your shares will start getting sold once the stock price hits this trigger point. Now, let's see how we can use a stop order to buy shares. So let's say there is a stock which is here, again creating at $100 in the market. And you think that once the stock gain some momentum and it gains 20%, it is going to rise further. So it will continue to rise and maybe double or triple in value over the next few months or years. So that is your belief. But you also believe that if it is not able to cross this mark, then maybe the stock price is not going anywhere. So this is a condition that you believe in that if it gains upward momentum, it will continue to rise. If not, you do not really want to buy the shares. So here we will place a buy stop order and you will set the stock price at $120. So if the stock price is below 120, then your order will not be executed. But if the stock price rises and hits 120, at this point, there will be a market buy order executed on your behalf. So at 120, the backstop order will get converted into a market buy order and your shares will be purchased. So it's important to remember that stock price is a trigger point at which your buy or sell order gets converted to a market order. So a stop by or by stop triggers a buy order only when the stock price hits the stock price. So at this point, when the stock price hits this particular trigger point, then you are by stop order gets converted to a market buy order. Similarly, a stop cell or a cell stop or a stop-loss triggers the cell order only when the stock price, it's the stock price. So here in this case, if it is at a 100, nothing happens but wanted drops to your trigger point of $80 or your stock price. Then your stop-loss order gets converted to a market sell order, and then it gets executed as a market sell order. Stop orders are suitable for traders who believe a stock will continue its momentum in one direction. So here you believe that once it falls below this point, it will continue to fall and you want to limit your losses. That is why you set a stop-loss. And here you believe that if the stock price rises by 20 percent, it will continue its momentum and it will go up further and further. So in this case, it might be useful for you to place a buy stop order. One caveat with stop orders is that the stock price is just a trigger point. It does not ensure that the byte order or sell order will execute at the stock price is always good to remind yourself that it triggers a market order. So here in this case, this order will be a market sell order. And here in this case it would be a market buy order. And as we have already discussed, market orders have low control on the price of execution. Now it is important to distinguish a stop order from a limit order. Now let's say you had placed a limit order with a limit selling price of $80 and the stock price was at a 100 dollar limit order ensures that while selling, you get your limit price or higher. And here the a $100 is already higher than your $80. So if it was a limit sell order, it would have been executed here itself. So it would not have waited to come down here. It would have executed as long as you are getting a price better than your limit price. Similarly, if you had put a limit buy order of $120 and the stock was at 100.100 is a better price while buying. That is, a $100 is lower than your limit by price of 120, it would have bought the stock here itself. So it is important to distinguish between stop orders and limit orders. So you use stop orders only if you want to benefit from buying into a rising stock once it gathers momentum. Or if you want to cut losses by selling a falling stock, once it gathers momentum in the downward direction. 7. Stop Limit Orders: Okay, so in this lecture we will talk about stop limit orders. We can use top limit orders to both buy and sell stocks. So let's see how that works. We will first focus on the stop limit sell order. So let's say you have 100 shares of stock which is currently trading at $100. And you are anticipating the stock price might fall. And if it falls below a certain level, then it will continue to go downward. So you want to continue or losses. So let's say you have done some analysis that if the stock price falls below 90, so if it falls by $10 from the current price level, it might continue to drop and it might not recover for a long time. So here you would want to exit your position so you can set a stock price at $90. So now the stock is here and for some reason it starts falling. It falls down to 90. At this point when the stock price equals the stock price is sell order would be triggered. But unlike in the case of stop orders, where a market sell order was getting triggered. In the case of a stop limits and order, you can also specify a limit sell price. So let's say your stock price was $90. You can say that, okay, I want to sell the shares, but the minimum I want to fetches $88 per share. So that is your limit sell price. So your order gets triggered here and the exchange gets the order of a limits and order with a limit price of $88. So if the exchange can fulfill your cell order, they will sell your shares at either $88 or more. We can also use top limit orders to buy shares. So let's take the same example. The stock is at $100 and you believe that once it breaks, there's a $110 resistance. It is going to continue to rise. So you can place a stop limit buy order. And let's say your trigger point or your stock price is a $110. And the stock continues to rise from here and it goes up and up and up. So at this point when the stock price equals the stock price, a limit buy order will be triggered. And you can specify your limit by price. So let's say you want to pay a maximum of a $112 per share. So at this point, the exchange will get a limit buy order with a limit price of a $112. If the exchange can fulfill your order keeping this condition in mind, you will buy your shares at $112 or lower. In this example, for a stop limit sell order, the limit sell price was below the stock price. And for this top limit by example, the limit by price was above the stock price. It is important to note that some brokerages have this condition that the limit sell price has to be at or above the stock price. So here in this case, you could only place a limit sell price, either at the stock price itself or slightly higher than the stock price. And while buying, some brokerages have this condition that your limit by price has to be at this top price or slightly below the stock price. So here in this case, your limit by price would be either a 100, 10, or lower than that. So to quickly review, is stock prices a trigger point at which your buy or sell order gets converted to a limit order. So it stopped limit by triggers a limit buy order only when the stock price hits the stock price. So here in this case, your stop limit by was getting converted to a limit buy order with a limit price of a $112 when the stock price hits this top price of a $110. Similarly is top limit sell order triggers a limit sell order only when the stock price hits the stock price. So here, if the stock was falling from a 100 to your stock price, which was 90, a limit sell order with a limit sell price of $800 was getting triggered. Stop limit orders are suitable for traders who believe a stock will continue its momentum in one direction. And they want to benefit from buying a rising stock, as we have seen in this case. And they want to cut their losses by selling a falling stock once it gathers momentum in a downward direction. So here you are convinced that once it breaks the support level, it will continue to fall and you want to cut your losses. In that case, you can use this top limit sell order. The difference between stop order and stop limit order is this that unlike the generic stop orders, stopped limit orders give the trader control on the trade execution price. So while selling your stock, you can set a limit sell price. And while buying us talk, you can set a limit by price. So this is an additional level of control that you get via stop limit orders. However, it comes with a caveat that if the limit price is not met and a stock continues its strain in an unfavorable direction, your order will not get executed. So let's say this is a rapidly falling stock. At this point at $90, you are triggering a limit sell order. However, let's say you have a lot of shares. Let's say you have 500 shares. And since the stock is falling rapidly before your 500 shares can be sold, the stock price might fall below 88 and not recover. And since limit order ensures you get at least 88 or more, maybe in this case your cell order will not get executed. So there is a risk of that happening as well. Similarly, on the buying side, there is a risk that the stock rises rapidly. And before the exchange can execute here by order, the stock price goes beyond 112 in the upward direction, and you have a limit by price. So if the exchange is not able to get your shares at a 112 or lower, it will not execute your grade. So you might get a partial fill. That is, if you placed an order to buy, let's say 1000 shares, maybe you'll get a 150, I don't know. Or some lower number than your desired quantity and, or you might get absolutely 0 shares. So setting a limit price on a stop order gives you additional control. But there is this risk that you need to be aware of. 8. Trailing Stop Orders: So far we have talked about the generic market buy and sell orders. We have also talked about limit orders. We have talked about stop orders, and we have also talked about stop limit orders. In all of these cases, We were either specifying the order to be executed at market price or we were specifying some sort of a limit price for buying or selling our shares. What if there was an intelligent way of placing a buy or sell order in which the order price it just automatically based on how the stock price is going so as to give us a better price while buying or selling shares. So let me introduce to you trailing stop orders. Trailing stop orders can be used to both buy and sell shares. Now let's take a look at how trailing stop loss or a trailing stop sell order can work to our advantage while selling shares. So let's say we have some shares of a company whose share price is currently $100. And we want to sell the shares if it falls by 10 percent, right? So let's say I set a stop loss at a stock price of $90. Okay? And what I'm expecting is in case the stock falls and falls to 90, I will sell my shares, right? This is what we saw in these top limit and stop orders. However, what happens if the stock actually goes up instead of going down? And let's say it starts going up and it goes to 130, and then it starts falling and comes down to 90. So in this case, the sell order will be triggered at 90. We won't be able to take advantage of the stock price going from 100 to 130 before it falls to 90. However, if we make use of trailing stop orders, we can achieve this. It trailing stop order or to adjust the stock price to give you a better buying or selling price. So here what I can do is I can set it krill or a difference from the market price, either in terms of percentage or a fixed dollar amount. So here let's say I want to set a trail or a difference of $10 from the current market price. What would happen in this case is instead of this being a straight line at 90, my stock price will start going up if the stock price is going up. So it will continuously maintain a difference of 10 dollar from the market price. And then at this point when the stock price peeks at 130, my stock price will auto adjust itself to 120. However, the good thing about creating stop orders is it is unidirectional. So the stock price will only go up while the stock price is going up. But once the stock price is coming down, then at this point the stock price will stay the same. It will not follow the stock when it is falling. So here at this point, when the stock falls from 130 to 120, my stock price will remain at 120. And at this particular point, the sell order will be triggered. So had we used a traditional stop order, I would have sold my shares here. However, if I'm using the trailing stop order, I'm able to take advantage of this price rise and my stock price is auto adjusting in a positive direction for me. So I'm able to sell my shares at this point when the stock price is at $120. Here it is important to note that at this point in market sell order would be triggered. We can use detailing stop order also for buying the shares. So let's say the stock is here at 100. And I want to buy the shares if the stock price goes up by $10. So in case of a traditional stop order, this would be a straight line. This would be the stock price fixed at $110. However, if I use a trailing stop order to buy the shares and said a trailing difference of $10. If my stock price is going down, let's say, then this particular line, the stock price, will start tracking the price of the stock. And it will maintain the same $10 trail difference that I have set initially. So let's say it comes down here at $80 and then it starts climbing up again. Let me use a different color. So at this point when the stock price is at 80, this particular stock price will be at 70 because it will maintain the same $10 difference from the market price of the stock. When the stock price starts climbing, then the stock price will stay the same because it is unidirectional. It will not adjust upward when the stock price starts going up. So it will stay the same at 70. And when the market price of the stock meets Here, it comes to 70, then there would be a market buy order triggered. So at this point, the trailing stop by order will trigger a market buy order. And most likely you will get your shares at around $70. So in case of a traditional stop order, if the stock price kept climbing, your order would have been executed here and you would have bought the shares at around a $110. However, by using a trailing stop order, we are able to take advantage of this particular temporary dip and we are able to buy the shares at $70. So let's do a quick review. The trailing stop order, auto adjust the stock price to give you a better buying or selling price, as we have seen in these two examples, you can set it cradle in percentage or a fixed dollar amount. So in both our examples, we used a fixed dollar amount of $10. But if you want, you can also set it as a percentage. It willing stop order, adjust the stock price unit directionally. So when we're selling the stock price only goes up. It does not adjust downward. And when we're buying, the stock price only adjust downward, it does not go up. Now this is my favorite archetype because it helps me get better price when I'm buying or selling my shares. And I hope you find this interesting as well. 9. Trailing Stop Limit Orders: Now let's talk about reeling stop limit orders. Now it trailing stop limit order is very similar to a trailing stop order. So we just did a trailing stop-loss example in the previous lecture. I want to show what is the difference between a trailing stop-loss and a trailing stop limit sell order. So here's what we know about trailing stop-loss order or a trailing stops in order. The orange line here is the stock price. And the blue line here is D stop Bryce. So we already know that in case of a trailing stop order, the stop line will maintain a gap of a fixed amount or a fixed percentage from the stock price. So here the stock price is rising and the stop line is following this while maintaining the same gap. And when the stock price dips, this top line remains the same. And when the stock price starts going up and then the different starts increasing from the fixed amount. Then the stop line also starts climbing. So let's say the stock price comes here and it peaks at this point and then it starts dipping. So then the stock price stays fixed at this point because the stock prices dipping and dipping. And here at this point, the stock price hates this particular stock price, then a market sell order was getting triggered, right? In case of traditional trailing stop loss. However, the difference here is in case of a trailing stop limit order, instead of a market order getting triggered. Here we will have a limit order getting triggered. And in case of the trailing stop limit order, we can also specify a limit price which can be slightly below this particular stop line. And let's say this is our limit sell price. It will just ensure that when your cell order is triggered, a limit sell order is getting triggered with a limit sell price of what you have specified here. So this is what happens in case of a trailing stop limit sell order. Similarly, you can also set a limit by price when you want to use a trailing stop limit order to buy shares, quick review. The trailing stop limit order will auto adjust the stock price to give you a better buying or selling price. You can set the trail in percentage or a fixed dollar amount. And the additional feature in case of drilling stop limit order is that you can add a limit price to the trailing stop order to give more control over the order execution price when the stock price hits the stock price, as we see here at this point, a limit order is triggered and you can specify the limit order price. And very important to note here is that a trailing stop limit order. We'll also add just the stock price in just one direction. So as long as the stock price was going up, the stock price was going up with it. But when the stock price starts falling, then this particular line does not fall, but it rises again as the stock price rises again. 10. Market Makers: I hope you have been enjoying this course so far and you have learned about different types of orders. Not only market orders, but limit orders, stop orders, stop limit orders, trailing stop orders, and trailing stop limit orders. If you are confused about anything, please feel free to rewatch those lectures and I'm a 100 percent sure that your concept would be clear. Now I wanted to go over a few more things. So let's take a look at the bid ask spread during trading hours. And here we are again talking about the Apple stock and during live trading, vote price is 160 point 300. However, if you come here and see what the bid prices, it is $160 and 29 cents. And the asking price is $160.31. So we know here that the spread or the gap between the bid and the asking price is $0.02. And the quote price here that you generally see on your app or creating platform is a price between the bid and the ask price. Once again, a bid price is the price that the buyer says they want to buy the stock Act. So this is what the buyer says. And the asking price is the price that the seller says that they want to sell their stocks far. So the lowest selling price is 160, 0.31, and the highest buying price is 160, 0.29. I also wanted to show you this. So here this quote is from 1941 AM so this is like 11 minutes since the stock market opened and 11 minutes there are 205,818 grades. And the number of shares that have been created, our 20 point 3, 64 million. So earlier in this course I was talking about the volume of trade. And here you can get a quick estimate of how many shares of Apple have been created in just 11 minutes during the market hours, the average cost of trade was 160, 0.05. And in dollar volume, these many shares multiplied by the average price, gives you the dollar value of the trade that has happened in just 11 minutes. Next, I wanted to show you how an order book looks like. So here in this screenshot, we were able to see just one bid price and one asking price, right? But if we go for level 2 data that shows us the entire order book, we will see something like this, and I have chosen an example from the cryptocurrency world. So here I have Bitcoin versus the US dollar. If you access level to data, you should see an order book, something like this. So here we have the bid, and here we have the ask. So the highest bid is here, $56,579 and 99 cents, and then beds are becoming lower. You will notice this on the asset side, the sellers want to sell the shares of Bitcoin in this order. So the lowest they are willing to accept is 56 $1580. And then the price increases as we go down. So in the very first lecture, we were talking about how the bed and asking prices are stacked and the bid prices are stacked in descending order, and the asking prices are stacked in the ascending order. And this is the point where the rate would happen. So here you would notice the difference between the bid and ask prices just to $0.01. So the bit is 56, 579 dot 99, and the asking price is 56, 50, 80-zero. This column here tells the quantity. So at this particular price point, there is a bid order, or people are willing to buy 0.4317 bitcoins. And at this price, $0.565180, people are willing to sell 0.33741 Bitcoins. Now let's move over to this side where we have Cardano, that is another cryptocurrency. We have a similar structure here. The bid prices are here, and the asking prices are here. The quantities are easier to understand in case of Cardano because we have bigger numbers as compared to decimals in this Bitcoin case. So the highest bid price here is $1.682 and the buyers are willing to buy 19,277.9 Cardano. And this point, and the sellers are willing to sell 40,494 car nanos at this price point of 1.683. Again, the bid prices decrease as we go down here. And the aspirin prices increase as we go down this line. Okay, So this is how it is tact. And let's do a quick example to understand how it works. So let's say there is a stock of a company, ABC XYZ. I'm just making this company up. And this is what the order book looks like for this stock. This is the bid side, and this is the ask inside. At $100, there's a bit of five shares. At $99.95, there is a Beta of three shares. Similarly, we have other orders stacked here on the side at a 100, 0.05, v have an order off Devin share. So there are people willing to sell seven chairs at 100.05. Similarly, there are three shares to be sold at this point, and there are further orders stacked here. Now let's say you want to buy 25 shares. So let's say you come to the market and let's say that there are no more orders coming in and you are the only buyer. So you have to why 25 shares, you place a market buy order. How will that be executed? So your first seven shares will be executed here at a 100, 0.05. Then your next three shares will be executed at a 100 and 0.1. So till now we have covered just 10 shares you want to buy 25. So we will keep going. Next aid at a 100 point 15. So far we have done 18 chairs and then we buy another four. We are at 22, and then we have to buy three more shares. So we will buy three more shares at a 100, 0.25. So in case of a market order, this is how your order will be filled based on what is available on the inside. Similarly, let's say you have 25 shares and you want to sell them at market price. And let's say this is the situation. There are no more orders for buying or selling coming. And you are the only seller from the side. So you place a markets and order and you have 25 shares to sell. So your first five shares will get sold here at a 100, 0-zero. Then the next three we'll get sold here at 99.95, then another seven shares will get sold here. So far we have sold five plus three plus seven, which is the total of 15 chairs. We have 10 more shares to sell, so we keep going. We sell six more shares at 99.85. And now we are left with just four more shares to sell. So we will sell them here at 99.80. So in case of a market sell order, this is how your order will be executed for selling your 25 shares. I hope this gave you a deeper understanding of an orderable and how we market buy or sell order gets executed and why you might get different prices, even if you place just one order for buying or selling shares. With that, we move to the last topic of this course, which is market-makers. Now have you imagine what would happen if there are no sellers in the market and you want to buy shares. So let's say we are back here in this case. And let's say you want to buy 100 shares, but you have only 25 to 30 shares available in the market. And then there are no sellers willing to sell shares. Now what would happen is there might be some opportunistic person who sees this in the market and says, You know what, I'm going to sell my shares for a $109.1 share. And then there is another person who would say that, Okay, I think I can demand anything I want. Then that person will say that I will sell my shares at a $125. And likewise, the stock price can skyrocket. And at 1 there will be no trading of shares because the stock prices become prohibitive for someone to buy or sell shares if there are no buyers in the market, what would happen is the opposite. Let's say you have 100 shares of a stock and you want to sell them, but they are just 25 to 30 buyers on this site. So what would happen is some person will see the opportunity and say that, okay, I'm willing to buy your shares, but I will buy one share at 80. I will buy one share at 75, I will buy one share at $10. So the stock price here can get into a freefall. And we do not want that to happen in the market, right? That is why we have market-makers. Market-makers ensure that buying or selling of stock is easy on the stock market. The market makers provide liquidity to the stock market by providing bid and ask prices on chairs. So here in these two examples, even if there are no retail buyers like you or me, the market-makers will continue to provide a bid and ask price so that people who are willing to buy the shares can buy them. And the people who are willing to sell their shares can sell them. So now we see the importance of a market maker in keeping the trends going on in the stock market. So who is in market maker? A market maker is a FINRA registered broker dealer firm that facilitates trading in the stock market. We have just seen the activities of market-makers are regulated by the SEC, which is Securities and Exchange Commission, and FINRA, which is Financial Industry Regulatory Authority. Now why do the market-makers do this? Because they can benefit from the spread themselves. So how do these market-makers benefit from the spread? If we go back here and we see that the spread is just to sense, what exactly is the market maker getting out of buying and selling for a difference of $0.02? The answer lies here, to sense by itself does not mean a lot. But if you are getting $0.02 on 20.3 million shares, then it all adds up very quickly. Okay? So this is the benefit that the market-makers get. However, they also have a risk. And the risk here is this. Let's say they continue buying the shares and they are not able to sell their shares to someone else for a profit, they might have to offload their shares for a loss. Similarly, if there's a high demand of shares and they keep selling their shares and they have to buy them back at higher prices, then also they are making a loss. So they have to measure their risk of buying and selling of stock against the benefit they get from the spread itself. Now this is something we all can agree with. The more the market makers, the thinner the spread will be. Because if there are more and more market-makers trying to compete on the same security or the same stock, then they will provide thinner and thinner spreads because they want to do the deals. So unpopular stocks, there will be more and more market-makers registering to be a market maker for that stock. And the spread will be thinner. And generally that would mean that the stock is more liquid and you can buy and sell the stock very easily. With that, we come to the end of this course. And I really hope you got a good understanding of how the stock market works. What are the different types of stock orders available to you and how the orders are stacked in the exchange. And what is the importance of a market maker in keeping this stocks tradable and liquid. If you haven't already feel free to check the other courses I have on personal finance and investing. I really appreciate your time and thank you so much.