Market-With-Protection Order
Categories: Trading
You log into your online trading account to buy 10 shares of GOOG. You just want to purchase the shares at the market price...whatever price it's trading at when the order executes is fine with you.
Meanwhile, you just signed up for really cut-rate WiFi...so the order takes awhile to process. And while the little icon is spinning on the screen, word gets out that the Chinese government is making a bid to purchase Google. They're tired of all the censorship discussion...they'll just purchase the company for $1 trillion or whatever, and run it themselves.
In the wake of the news, the stock skyrockets. In a few seconds, the stock jumps from $1,000 a share to $1,200 a share...all while your computer chugs along at 1997 dial-up speeds. What you thought would be a market order at around $1,000 is now executed at $1,200. Those 10 shares cost you $2,000 more than you expected.
A market-with-protection order would have prevented this.
It still represents a market order, but there's an additional stipulation that the transaction won't execute if a big move happens between the time you request the trade and the time the trade closes.
The order gets canceled as a market order if the stock moves a certain amount...and then becomes a limit order. If a big move happens, the order becomes one with a specified price ($1,000 in the GOOG example) rather than an order ready for any market price.
This kind of order generally executes at market price. But you've got protection against weird turns of events. Hence the name.
Related or Semi-related Video
Finance: What are At-the-Close Order and...24 Views
Finance a la shmoop.. What are at the close order and at the opening orders
Well simply put they're a way of buying and selling stocks and bonds and [Shmoop video on PC monitor]
they're really a hybrid form of a limit order only instead of limiting the order
of a hundred shares of Mickey D's at 45 bucks or better the "limit"
is time-based that is it is placed a minute or less from the close of the
market like 3:59 p.m. New York time or the open of the market like 9:31 a.m. New
York time got it so why would someone do this kind of limit order well if a [Man discussing limit order]
company that day before had printed what looked like a really good quarter but
upon deep inspection the investor who owned the shares thought otherwise and [Man inspecting company folder]
you know wanted to dump them well then that investor would want to take
advantage of a high opening print and just sell it whatever the price was a
minute or two after the open making the bet that the stock would then trade down
after bigger smarter better analysis was published on the stock itself and then
everyone else went to dump it - so what about an at the close order well kind
of inverse of the same thing here a company's quarter will be announced at [4:28pm shown on digital clock]
4:30 p.m. New York time tons of excitement leading up to it so
"everyone" wants to be long the stock ahead of earnings but you think
earnings will disappoint like you know buy the rumor sell the actual news kind
of vibe so you want to hold the stock until the last minute that day and then
you just give the guidance to sell the stock that last minute of trading or at [Investor sells stock to market]
the close and you're out and now we have arrived at the close of this video... Adios! [Man waving on stage]