Question

Define/Describe the following terms:
Market order
Limit order
Stop loss order
Short Sale
Margin
Ask price
Bid Price
Spread

Answer 1

Market order - It is a type of order which will be executed at the best bid/ask price such that the entire order quantity is filled. It ensures immediate execution of the order, but does not guarantee the price at which the order will be filled.

Limit order - It is a type of order which will be executed at the specified price only, and will not be executed if the specified price cannot be obtained. It ensures price guarantee of the order, but does not ensure that the order will be filled.

Stop loss order - It is a type of order which will be executed only if the market price hits a specified price. It can be a stop-loss buy order or a stop-loss sell order.

Short Sale - This is when stocks are borrowed and sold in the market with a view to profit from a fall in the stock price. After the stock price falls, the stocks are bought back and returned to the borrower, thus earning a profit.

Margin - This is a service provided by brokers wherein the entire value of an order does not need to be paid upfront in cash to the broker. Rather, only a portion of the order value needs to be posted as cash with the broker, with the remaining being lent by the broker. The amount lent is called a margin loan.

Ask price - This is the price or prices at which sellers of a security are selling.

Bid Price - This is the price or prices at which buyers of a security are buying

Spread - The difference between the bid price and ask price is called the spread