Types of Trading Orders: What to do and what not to do

Futures Trading - Clearing house

In the world of trading different instruments in an assortment of markets will require you to learn about all of the different types of orders. After you learn about the fundamental terms such as: buy, sell, long, short, etc. and the basic strategies such as stop-loss, profit-target, etc. it is time for you to learn about orders. It is crucial to use the right order for proper needs.

Market Order

The market order is usually what most people think of as a “traditional” order. It is what happens when the customer orders for immediate execution at the best price available in the marketplace. Market orders are the most commonly requested and most commonly fulfilled orders in the marketplace due to no price being specified. While it also guarantees the order will be executed, there is no say on the price that it will be purchased/sold at. However, a market order generally will execute at or near the current bid (for a sell order) or ask (for a buy order) price.

Stop Loss Order

To start, a stop-loss order is when one places an order to execute a trade once a specified price is reached. It can be set so that it is time-limited, or so that it is good until canceled. It is important to understand that a stop-loss order guarantees execution, but not necessarily the price, in the event that the specified price level is traded through. Once the stop price is reached, the stop order becomes a market order.

Limit Order

A limit order is a way to buy a financial instrument or asset at a specified price or better. We will break it down between a buy limit order and a sell limit order. The buy limit order can only be executed at the limit price or lower and a sell limit order can only be executed at the limit price or higher. They are used by investors and traders who already know exactly what price they are willing to trade at. They also are commonly less expensive than market orders (mentioned above) to actually execute in the market. However, while there is a chance that you will get a better price, there is also a likelihood that your order will not be fulfilled at all.

Read more about Limit orders: The small change that can make a big difference