The term “Order” refers to how you will enter or exit a trade. There are many different types of orders that can be placed in the market. You can choose to execute a trade at the current market price. Alternatively, you can create a conditional order to execute a trade at a future market price, above or below the current market rate. Read about the order types available on Metatrader 4 and Metatrader 5.
This is practically the most common order type used by traders. A market order is an order to buy or sell a financial asset at the current price. When executed, it results into an open position in the market. AvaTrade executes market orders in real-time.
Unlike market orders, pending orders are an instruction to buy or sell a financial asset at a specified price in the future. A broker executes the said order when the set price objectives are achieved. Examples of pending orders are:
Limit orders are used when traders expect a better price than the current one. A buy limit is a pending order to buy an asset at a lower price than the current one, whereas a sell limit is a pending order to sell an asset at a higher price than the current one.
Stop orders are used to buy or sell an asset when the price reaches a specific level. When the price stop level is reached, it becomes a market order and is executed. A buy stop is a pending order to buy an asset at a price higher than the current one, whereas a sell stop is a pending order to sell an asset at a price lower than the current one.
One Cancels the Other Order
One Cancels the Other Orders (OCOs) are conditional orders that combine two entry orders. OCOs stipulate that when one order is triggered, the other order is cancelled automatically. This type of order aids risk management and it is an effective trading strategy, because when a particular trade idea is wrong, the opposite suggestion is usually right.
Take Profit and Stop Loss Orders
These orders are for exiting a trade position at a predetermined price point. Take Profit orders are designed for booking profits on a trade position when a certain price is achieved, while Stop Loss orders are intended for minimising losses at a defined price point when the asset price moves in an unprofitable direction. Take Profit and Stop Loss orders are attached on both market orders and pending orders.
Main Order Types FAQ
- When is the best time to use a market order?
There are a few situations where the market order is the best choice. One is if you simply want the quickest execution possible. Another is whenever you’re trading an asset with high liquidity and an extremely tight spread. For example, this comes into play when you place orders for forex pairs with spreads of just a few pips, or stocks with a bid-ask spread of a penny or less. Another situation where the market order is acceptable is when you’re trading small lot sizes of under $1,000. Any time you want to get in or out of a position quickly, a market order is best. The same is true when the cost of entry and exit is extremely low.
- Where should I place my stop-loss orders?
Determining where to place a stop-loss order is all about deciding how much risk you’re willing to take. For example, if you buy a $100 stock and place your stop-loss at $90, you’re indicating a 10% loss is acceptable. This type of percentage loss is a standard method for determining stop-loss levels. Another approach is to use nearby common moving average levels, or other support or resistance levels to decide where to place a stop-loss. In any case, your risk of loss should be no more than half your potential profit. So in the example above, with a possible 10% loss, the profit target should increase by $120 (20%) at a minimum.
- What trading strategy uses a One-cancels-the-other order?
This risk management strategy links a stop-loss order with a limit order to automate a trade. The stop-loss order is triggered if the loss becomes greater than the trader is willing to accept, while the limit order is triggered if the order reaches the profit target. This strategy allows a seasoned trader to enter a position, define the exit conditions, and put the trade out of their mind, knowing it will execute as they want, without the risk of emotions entering the picture and messing with the trade.