If the client instructs the broker to perform operation at market price, then Market Order is placed on the exchange. In this case the order is executed as quickly as possible at best price available on the exchange at the time of its placing. The broker confirms execution of the order already in few seconds after its placing.
It is important that in view of fast enough change in exchange prices during the auction the selling or buying price of a security may differ a little from its price at the time of placing of the order. That is why the market order is usually used when the client wishes operate on the market as quickly as possible and at the same time be sure that his order will be executed.
Limit Order (Order at Previously Fixed Price)
If the client instructs the broker to perform operation at a price previously fixed by the client himself, then Limit Order is placed on the exchange. It means that the order may only be executed at specified or better price.
The advantage of Limit Order is that the client knows beforehand the worst price at which operation (purchase or sale) ordered by him can be executed while the disadvantage is that it is not known beforehand when the order will be executed, if at all. Execution of the order depends on whether the market will reach those price levels expected by the client. PNB Banka accepts Limit Order both for current day session and for longer periods. In the latter case the client must exactly specify time and date till which the order is effective or specify that the order is valid till its cancellation by the client himself (GTC – Good Till Cancelled).
Short Sale (Sell Short)
Short sale is intended for bear operation (speculation for the fall in market prices). Market participant “borrows” a security from other market participant and sells it, expecting that its price will fall and afterwards he will be able to buy it back at cheaper price and return. Just this difference will be the profit.
Short sale usually requires a security deposit to cover potential losses in case if the security price grows despite expectations of the client. It is also necessary that there would be a market participant who is ready to lend the client a security at the broker’s request. That is why before opening the short sale it is desirable for the client to additionally coordinate conditions of this operation with the broker of PNB Banka.
Additional benefit of short sale is actually noninterest bearing credit granted to the client. Since the security deposit paid in by the client during the transaction is several times less than the value of securities involved in short sale, the client has the opportunity to speculate for the fall by a sum that is much larger than that at his actual disposal.
If the client wishes to conduct more transactions with the same security during one trading session, he can give an order for both purchase and sale at the same time at previously fixed prices. By means of multiple orders the client can, for example, try to catch the lowest price during the trading session (and acquire a security) and the highest one (for sale).
Since many strategies are available, the client when giving more orders at the same time should clearly specify the effective time for each of them as well as indicate, if necessary, the connection between the orders. Thus, OCO (One Cancels Other) orders are widely spread, where execution of one or more orders entails cancellation of other orders.
The client also has the opportunity to adjust the time of giving the order to the trading floor at market price or change the fixed price in Limit Order during the auction within the given order. To do this, the client should indicate such wish in the order or get in touch with the broker of PNB Banka.