In this article, we will look at all the different types of orders that are there in trading.
There are many advantages to using these different types of orders and we can recommend different strategies according to the order types.
Before we get into detail, let’s take a look at the five most common order types in trading.
The five types of orders:
- Market orders are designed to immediately open a trade at the best available market price.
It can be used for both buying and selling. This order guarantees that the trade will be executed, but the entry price may be slightly different from the last price quoted in volatile markets.
- Limit Order is designed to open a trade at a specific price and expiry date. It can be used for both buying and selling. This order only guarantees that your trade will be executed at the desired price. For longs, the activation price must be lower than the market price. For shorts, the activation price must be higher than the market price.
- and sell when the activation price is lower than the current market price.
- The stop-loss order is designed to limit losses and avoid potentially losing all your capital. If you are buying and the exchange rate starts to fall, the stop-loss order will automatically liquidate your position and minimize your loss.
- The Take Profit order is designed to close a profitable trade and lock in profits.
Stop Order is designed to buy when the activation price is higher than the current market price
Don’t worry, we will analyze each of these for you with a clear picture to help you understand.
Types of trade
Below we will examine each different type of order individually with detailed examples of each.
Market orders explained
As we said above, this order you place will ensure that the trade will be executed. However, if the market is volatile, this could get ugly if you’re not careful.
Here is an example of a market order
Think of this as Amazon has a “one-click” order. If you like the product at that price, you get it at that price.
This is the most standard and easiest to understand type of order.
Remember we said this could be bad if you’re not careful in a volatile market?
The reason is that the price you get at may not be the price you expected. It is not possible to specify the desired price. Yes, you understand this right away, but if there’s a big gap between buyers’ bid price and sellers’ ask price, it could cost you if you’re trading in large quantities.
This is not a big deal most of the time, but it is something to be aware of when executing a market order in Forex, Stocks or cryptocurrency.
What is the best market order trading strategy?
We have a few, but you’ll want to take a look at the best market order trading strategy we have.
Limit order explanation
As we said above, this is designed to open a trade at a specific price and expiry date.
It can be used for both buying and selling.
This order only guarantees that your trade will be executed at the desired price. For longs, the activation price must be lower than the market price.
Here’s an example of a purchase limit order:
For shorts, the activation price must be higher than the market price to place a sell limit order.
Here’s an example of a sales limit order
What is the best limit order trading strategy?
We have a variety of limit order trading strategies and this is what we like the most.
Explanation of arrest order
You buy when the activation price is higher than the current market price with a Stop order.
Here is an example of a buy stop order
So when the price goes up and hits this, you’ll be in a BUY trade in the hope that this will keep going up
Alternatively, sell when the activation price is lower than the current price.
Here is an example of a sell stop order
So, when the price
goes down and reaches this price, you will be in a SELL trade in the hope that this will continue to fall.
There are many advantages to stopping orders. One of the main advantages is that you don’t need to be in front of the chart when it is activated. Just set it up and forget it.
This is perfect for when there is a distinct level like this:
Once it breaks the level you want to buy here, it will automatically trigger if you set a buy stop order.
We have a great stop order trading strategy that you can try here.
Explanation of stop-loss<br /> order
Stop loss orders are designed to limit losses.
This will help you not to potentially lose all your capital in one trade.
If you are buying and the exchange rate starts to fall, the stop-loss order will automatically liquidate your position and minimize your loss.
Here is an example of a stop-loss order on a buy trade
Many traders fail to use a stop-loss in any market.
Forex, stocks, Crypto, no matter what you’re trading. Remember.
Use. A. Stop-loss.
You’d rather lose 1% or 2% on a trade, or be down 96% with little hope of it coming back.
There is a reason why +95% of traders fail.
Most of the blame is that they are not using proper stop losses and minimizing their losses.
Take a look at an example of where a good stop-loss should be placed.
This came from one of our favorite trading strategies. You can read the full strategy here if you want.
Additional Stop-Loss Orders
There is an additional stop loss order that is very popular which is called trailing stop loss.
A stop loss
trailing order moves after the stop loss is already in place. Let’s say you’re trading a stock and you have a buy order set to $20 and your stop loss is set to $18.
The trailing stop would be moved to $19, $20, $22, and so on as the stock will continue to rise.
Using a trailing stop loss is highly effective and is recommended.
This helps you lock in earnings and stay profitable.
Explain the profit order
This is the trader’s preferred type order.
If you reach a take profit, it means that you have reached your profit goal!
The Take Profit order is designed to close a profitable trade and lock in profits.
Here is an example of a take profit order (BUY trade)
These are common on any trading platform.
You don’t need a take-profit order, but it’s good to have one if you’re focusing on risk/return.
We have a great article on risk strategy for reward here that we recommend you read will help you understand where the best place to place a take profit order is.
Order Types Cheat Sheet
Who doesn’t love a good cheat sheet? Feel free to use the cheat-sheet below to help you decide what type of order you want to use when the time comes. The formulation can be a trick, it’s always nice to have a view from which to start.
There are many types of orders in trading. Trade types can be confusing, so please save this article for future reference. Most traders will use these standard order types when trading stocks, cryptocurrencies or forex. If you have any questions or comments please post below!