Order is an essential concept and mechanism required for the execution of the trade. Here in this article, tradingcritique.com explains to you about the important types of orders. After reading this article you can easily understand and differentiate between different types of orders.
If you do not understand any concepts in this article, we kindly recommend that you read Trading: All you need to know about, where you can learn about all the basics about trading.
What is an order?
Order means the information which you provide to the trading platform or a Broker-Dealer for the execution of any trade. In your order, you will specify all the required information such as when to open the trade, when to close the trade for the financial asset you decide to trade.
Order can be easily understood from some of our day-to-day activities such as placing an order for some foods. E.g., you are in an Ice cream shop where you can customize your ice creams. You place an order specifying the flavours you need with the required toppings. Till this step, you have placed your order for your ice cream and you are waiting to get your order delivered. Relate this same concept for placing an order for your trade.
There are different types of orders provided by various trading platforms. Some broker platforms provide more than 100 order types such as Interactive Brokers. Here, tradingcritique.com has listed and explained about some important and widely used orders used in different types of trading.
Market Order
When you want to execute your order immediately as the market conditions are favourable for your trade, you place the Market order. The Market order is a widely used order and the basic order that is more straightforward.
After you decide which financial asset you are going to invest and complete your analysis for the trade, if the market is favourable you can immediately place the Market order. The Market order is executed immediately once you place it, but it is also prone to Slippages if the financial asset is more liquid and the prices are changing more rapidly.
Market if Touched Order
The Market if touched order is executed if a specified price is touched as mentioned by you. It is a type of market order where the execution of the order or opening of the trade takes place when the specified price is reached by the financial asset in its market as mentioned by you in the order.
The Market if touched order waits till the market turns favourable for you and then executes the trade. This reduces your time in following the market frequently.
The simple steps involved in the Market if touched order execution is as follows,
1) You need to complete your Technical analysis for the financial asset you are going to place the trade.
2) Choose your opening position and mention that price position in a Market if touched order.
3) Market if touched order will be executed when the market moves to the specific price as given in the order.
Market if touched order can also have problems of Slippage.
Limit Order
When you wait for the market to turn favourable for your trade, you place the Limit order. When you place the limit order you specify the price to execute your trade.
Limit order saves time for the trader as you need not follow the market frequently. Complete your technical analysis, place the Limit order. The automated trading platforms or the physical broker will execute the trade on your behalf when the market turns favourable as you have instructed.
In a Market order, the order is executed only at the specified price mentioned, whereas, in a limit order, the order is executed at the most favourable price taking into account the specified price.
The difference between Market order and Limit order is that Market order is executed when the price mentioned in the order is reached, whereas, in Limit order when you want to buy the asset, the order is executed either at the specified price or below that. If you want to sell the asset, Limit order is executed either at the specified price or at a price higher whichever is more favourable according to the market movements. Limit order gives more options favourable for profits in the trade than the Market order.
Stop Order
Stop order is opposite to limit order as the order is executed when the market moves to a less favourable position. You can set a specific position when to close your trade because beyond that limit you cannot practically sustain your loss in that trade. This type of stop order is also called Stop loss order, as it restricts your losses.
Sometimes, stop orders are used to open the trade also because from your analysis you predicted that after this less favourable position, the market is going to move to a most favourable position where you can get more profits.
But if Slippage occurs you may lose more. A solution for slippage is guaranteed stops.
Guaranteed Stops
Guaranteed stops are executed at the same level as a stop-loss order. But here you are protected from the risks of slippage. Guaranteed stops are executed at the same point you mentioned in your order and will not vary according to any rapid volatile price movements or slippage.
Difference between a normal Stop order and Guaranteed stops is that in the stop order, the order will be executed at the specified point, but if the market is more liquid and volatile, even a few seconds which the stop order takes time to execute, the price of the order changes. This does not happen in Guaranteed stops and the stop order is executed at the specific price mentioned and the volatile price movements in the market or Slippage does not affect the stop order. Broker-Dealer Platforms charge more commission for using Guaranteed stop.
Trailing stop order
Trailing stop order is a specialised type of stop loss as it helps in capping the loss and also protects your profit. Trailing stops are not placed for a specific price but for a specific percentage of movement of price from the market price. This specific percentage or amount is called a step. As the market price moves up or down, the step value follows it, and the trailing order percentage is changed accordingly to the present market position.
Trailing stops are also executed according to whether you decide to go long or short in your trade. Trailing stops does not guarantee a position and fluctuates according to the market movements.
Two types of percentages are set here, one is set for trailing stop and another percentage is set for step. As the market price moves, the trailing stop position changes when it surpasses the percentage of step. Trailing stop order trigger means a change in the trailing stop order according to step size when the market price moves towards profit.
The Trailing stop position changes according to the step size when the trade moves towards the profit or when the market is more favourable. The trade is closed at the trailing stop percentage when the market moves unfavourably.
Stop Limit Order
The Stop Limit order combines the features of both the stop order and the limit order. This order requires you to place two prices one for stop order and the other for the limit order. Once the price reaches the stop price mentioned, the order becomes a limit order.
Order types based on Duration
Orders can also be classified based on duration. You can specify in the order the date and time till which your order should be active. After that specified period that order gets cancelled.
Some main types of orders based on duration are,
- Good till cancelled,
- Good for the day,
- Good till date and time,
- Fill or kill,
- Execute and eliminate.
Importance of orders
Orders help you to plan your trade systematically before you place it. Selecting the type of order according to your analysis and requirement will make your trade profitable and helps in decreasing your losses. Selecting the type of order well before entering into your trade should be a part of your Trading strategy.
Using the different types of Orders, you can place many orders in your live trading account at the same time. You complete the Technical analysis of different orders in your trade and mention the specific price points for each order with the order type. The automated trading platforms will now take care of your orders as instructed by you. This makes your work easy in trading, as you are not required to follow the market movements for each of your trade orders.
The types of orders mentioned above are the major type of Orders present in most of the trading platforms for various Financial markets and Financial instruments. Knowing these basic Order types will help you to execute your trade in any market. You can learn more about the different types of orders provided in your Trading platform.
Now, most of the Broker-dealer platforms provide you with a lot of orders which you can use for executing or instructing the automated platform to execute the trades when the markets turn favourable. Before using any type of Order for your trade,
tradingcritique.com recommends you to read completely about the type of order and the mechanisms involved in that order. Only when you know about the working of a specific type of order, you can use it to profit from that. If you use an Order without knowing its nuances, you can end up in having losses just because you were not aware of the working of the Order you selected. So, beware about the type of Order you use in your trade.
In a Nutshell
If you have any doubts about the Types of orders, you can comment below. You can also ask your personalized questions to our Trading Critique experts here. To get more updates from tradingcritique.com, please Subscribe to our Newsletter.
