Types of instruction
on Stock Exchanges
Types of instruction on Stock Exchanges
Types of instruction on Stock Exchanges
- Order to buy – stocks will be bought at the lowest available price on the market
- Order to sell – stocks will be sold at the highest available price on the market
This instruction can also be described as a market instruction with an activation condition. It is used especially for a timely reaction to a rapid market change.
- Use:
The client instructs the purchase of a security provided that the price crosses the set barrier. (For example, the announcement is expected of a company’s important results. In the event of extraordinarily good results, the price of shares may cross a signicant barrier and rise sharply. In such a case, the client already wants to make a prot from this rise.)
- Instruction parameters:
Activation price: the price that activates the buying instruction. So that the buying instruction can be activated, securities must be traded once for this or a higher price.
The condition for setting the activation price: the activation price must be > the current price (price of the last closed transaction).
- Example: The stop market for buying:
- current price: CZK 480
- the client instructs the purchase of a security provided that the price crosses the barrier of CZK 500
- the client instructs: STOP MARKET
- activation price: CZK 500
If trading takes place on the market for a price higher or equal to CZK 500, then an instruction to buy is sent out to the market. The type of instruction is the market instruction. Securities are bought for the lowest available price on the market.
- Use:
The client owns securities and wants to be insured against loss from a possible sharp price fall. (For example, the announcement is expected of a company’s important results. In the event of the surprisingly negative results the price of shares may fall sharply. The client wants to be insured against a big loss and therefore instructs a stop limit for selling.)
- Instruction parameters:
Activation price: the price that activates the selling instruction. So that the selling instruction can be activated, securities must be traded once for this or a lower price.
The condition for setting the activation price: the activation price must be < the current price (price of the last closed transaction).
- Example: Stop market for selling
- current price: CZK 520
- the client wants to be insured against a sharp price fall, instructs the sale of securities provided that the price crosses the barrier of CZK 490
- the client instructs to sell: STOP MARKET activation price: CZK 490
If trading takes place on the market for a price lower or equal to CZK 490, then an instruction to sell is sent out to the market. The type of instruction is the market instruction. Securities are sold for the highest available price on the market.
Order parameters: Limit price (price condition)
- Order to buy – stocks will be bought at the lowest available price on the market, at the set limit price at the most.
- Order to sell – stocks will be sold at the highest available price on the market, at the set limit price at least.
The order can also be described as a limiting order with an activation condition. It is primarily used for a timely response to a fast market change.
- Use:
The client wishes to buy securities on the condition that the price breaks the set barrier. But at the same time the client wishes to set the maximum price at which the client is willing to buy. (For example, the announcement of important results of a company is expected. If the results are extremely good, the stock price can break a significant barrier and soar. In such a case, the client wishes to profit from such growth.)
- Order parameters:
Activation price: The price activating the order to buy. To activate the order to buy, such a price or higher price must be traded once on the market.
Condition for setting the activation price: The activation price must be > the current price (price of the last concluded trade).
- Limit price (price condition): The maximum price at which the client is willing to buy securities.
- Example: Stop limit for purchase
- Current price: CZK 480
- The client wishes to buy securities on the condition that the price breaks the barrier of CZK 500, but is not higher than CZK 515.
- The client will give the order: STOP LIMIT
- Activation price: CZK 500
- Limit price: 515
If a price that is higher than or equal to CZK 500 is traded, an order to buy will be sent to the market. As for the type, it is a limit order. Securities are bought at the lowest available price on the market, at the set limit (CZK 515) at the most.
- Use:
The client holds securities and wishes to secure against a loss resulting from a possible sharp price decline. (For example, the announcement of important results of a company is expected. In case of surprisingly negative results, the stock price may fall sharply. The client wishes to secure against a big loss and therefore gives a stop limit for sale.)
- Order parameters:
Activation price: The price activating the order to sell. To activate the order to sell, such a price or lower price must be traded once on the market.
Condition for setting the activation price: The activation price must be < the current price (price of the last concluded trade)
- Limit price: The minimum price at which the client is willing to sell securities.
- Example: Stop limit for sale
- Current price: CZK 520
- The client wishes to secure against a sharp price decline, wishes to sell securities on the condition that the price breaks the barrier of CZK 500, but not lower than at CZK 485.
- The client will give the order to sell: STOP LIMIT
- Activation price: CZK 500
- Limit price: CZK 485
If a price that is lower than or equal to CZK 500 is traded on the market, then an order to sell is sent to the market. As for the type, it is a limit order. Securities are sold at the highest available price on the market, at the set limit (CZK 485) at least.
Special parameters of instructions
If the specific exchange supports them:
- Trade a maximum number of pieces, cancel the rest (IOC – immediate or cancel) – the instruction is either immediately satisfied or cancelled. If it is satisfied in part only, the unmatched part of the instruction will be cancelled automatically.
- Trade everything immediately or cancel (FOK – fill or kill) - the instruction must be either immediately fully satisfied or cancelled.
- Displayed number of securities (iceberg instruction) – if a lower displayed number of securities than than the total number of securities of an instruction is specified, the specified displayed number will only be seen on the market during continuous trading. This instruction type enables you to give an instruction with a big number of pieces without notifying the market of the total number of pieces.
Validity of instructions
The maximum validity of instructions given through Česká spořitelna is 90 calendar days.
As regards instructions with the following parameters then instructions will only be valid for 1 day:
- Market buying instruction
- Trade the maximum number of pieces immediately, cancel the rest (IOC)
- Trade everything immediately or cancel (FOK)
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