An “Order”, in investment speak, simply refers to an instruction that you place to your broker (in this instance, Lightyear). This instruction tells us to either buy or sell a security within a certain set of parameters, depending on the type of order you place.
All Lightyear users currently have access to both Market and Limit order types for submitting buy or sell instructions.
Each order type has its own pros and cons, let’s dive into how they work and what the tradeoffs are.
How do Market orders work?
This is the most basic type of order. A Market order set by you instructs Lightyear to either buy or sell a security at the current market price*. These orders are executed as soon as possible, meaning if created during market hours, execution time is usually seconds. There are some caveats to this, such as the size of the order, with larger orders generally taking longer to fill depending on the available liquidity. If buying a security that has low trading volumes, it could also take longer to execute your trade.
Market order pros:
- Simple and easy
- Fast execution
Market order cons:
- No guarantee on the fill price: You could receive a fluctuating price to what you expected, especially during volatile periods
- Setting a Market order while the market is closed exposes you to the generally increased volatility of the first few minutes of trade each market day
*Market price: it’s important to note that this term reflects the current real time price a security is trading for, and this changes intra-second. The price you see displayed in the Lightyear app or any investment platform (including google) is only ever an estimation. See also: "Prices in the app".
How do Limit orders work?
Here we start to get a little more complex, with Limit orders allowing you to dictate the maximum buy price, or minimum sell price, of an order. This means that your order will only be executed at your specified price or better, minimising the exposure to fluctuating market prices.
The tradeoff here is that unlike Market orders, which generally execute quickly, Limit orders risk never executing if the market price does not reach the specified price set by you.
Limit order pros:
- Lets you set a specific execution price
Limit order cons:
- Slow execution time vs Market orders
- Risk of never executing if your price is not reached
- Not available for fractional shares
By default all orders are Market orders but you can change the order type at the top right corner when starting to place an order. Before confirming a Limit order, you can choose whether it should expire when the market closes and your chosen price isn’t met, or if it shouldn't expire.