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What is a Scale Order?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 06 February 2020
  • Copyright Protected:
    2003-2020
    Conjecture Corporation
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A scale order is an order to buy or sell a security, based on a set of pre-determined prices. An order of this type allows an investor to place the order with a broker, and take advantages of favorable prices for various securities, based on the changes in price that take place during the course of the trading day. As a specified stock reaches the price intervals set by the investor, the broker is free to buy or sell, depending on how the order is structured.

The structure of a scale order involves the creation of several limit orders, then using them to position the buying and selling activity in a way that ultimately earns a return for the investor. The nature of the limit orders define not only the price intervals at which to place the orders, but also the amount of shares that are to be purchased or sold as part of the order. To achieve the best return possible, this often means making judicious use of a combination of buy limit orders and sell limit orders that occur is specified sequence.

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One of the main advantages of a scale order is that an investor is able to take advantage of shifts in the market place as they happen. This allows the investor to buy shares when the price decreases below prescribed levels and hold onto those shares as the trend reverses and the shares begin to increase in value once more. At the same time, an investor can execute a scale order to sell when the securities increase to a certain price range, earning a substantial return from the process.

Investors tend to consider several factors when attempting to predict market trends. The closing price of the stocks on the previous day is often one important component, as is the opening price on the current trading day. Events such as anticipated announcements in changes in leadership at key companies is also a consideration, as is the potential for influences like the outcome of political elections, and natural disasters can also be important to crafting an accurate market projection. Even the past history of the securities under consideration for inclusion in the scale order is very important.

In order for a scale order to function properly, it is very important to accurately project the upward and downward movements of the market during the course of the trading day. Doing so helps the investor to set the prices at which certain provisions within the order must be executed in order to realize the greatest profit from the trading activity. Should the stock not perform in the manner projected, the investor could stand to lose money, rather than make any type of return from the execution of all or part of the order.

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