Trading Order Types and Processes

Maker-taker fees refer to the practice of securities exchanges offering market makers rebates and charging market takers fees for executing trades. Market makers are firms that are always ready to buy or sell a given security at the best possible price, making a profit off the ask-bid spread. Market makers enhance the market’s liquidity, thus attracting less active traders (and long-term investors) looking to buy at a reasonable price. Electronic exchanges began offering market maker rebates in the 1990s to draw trading activity from established exchanges with greater liquidity. The exchange makes a small profit on the difference between the fee charged to market takers and the rebate passed to market makers.

Stop loss orders are generally only executed during regular market hours, which can pose a problem for investors trading securities that gap down or up overnight. A significant drop in a stock’s price could trigger a good-til-canceled stop order that is actually executed at a much lower price than that specified in the stop order. To avoid this problem, you can place a stop-limit order, ensuring the trade will only be executed at a specified price or better.

 If your brokerage charges trading fees, a single limit order should incur the same fees as a market order. Fees on limit orders can add up, though, if the trade is executed as more than one order. Say, for example, you want to sell 1,000 shares of X at or above $5. When the price of X reaches $5, your order is sent to be executed, but there aren’t many buyers and only half of your order is executed before the price drops back below $5. The next time the $5 threshold is reached, the remainder of your order is executed, but you’ve been charged for two trades. You can avoid this scenario with “all or none” or “fill or kill” orders, but then you run the risk of the order not executing at all.

Yes, a good-’til-extended-market (GTEM) order will remain open after the end of regular trading hours. A GTEM order allows a trader to act on after-hours news, like a disappointing or unexpectedly good earnings report.