Types of orders in trading: a guide to effective trading

In order for your trades to be successful, you use your broker as an intermediary in the market where you trade. The instructions you give to your broker are transmitted through your trading platform. These instructions to buy and sell assets and financial instruments are known as trade orders. In the world of trading, there are different types of orders that allow you to trade effectively. Some of these types are Market Orders, Limit Orders, Stop Loss, Trailing Stop and Take Profit. These orders are used to make buy and sell trades at specific prices and to limit losses and lock in profits.

Types of orders used in trading

When you start trading in the financial markets, your job is to buy and sell assets and financial instruments. The main objective is to make short-term profits from price differences. And also on the discrepancies that the market can present. When trading, you use your trading platform. It is the link to your broker to make trades in the financial markets. In order for this to happen, you must give your broker trading instructions. These instructions are known as trade orders and there are different types of trade orders. Stop Loss and Take Profit orders are some of the best known because they are used to manage risk. But if you want your trading operations to be as efficient as possible, you need to be aware of the different types of orders available to you.

Market Orders

Market Orders are orders that are executed immediately at the current market price. A trader tells a broker that they want to buy or sell a particular asset - stocks, futures, forex, etc. - through the platform. A trade order of this type is executed immediately, regardless of the price at which the asset is traded. The only condition that must exist is liquidity. What does liquidity mean? That the order will be executed, if it is a buy order, when there are available sellers. If it is a market sell order, if there are willing buyers. Market Orders are the most common orders used by investors. They are used for both long and short positions. If the price rises during the execution of the order, you may end up paying more than you expected.

Limit Orders

Limit Orders are very important for traders who want to trade at very specific prices. These types of trade orders are available for both buying and selling. When a broker receives an order of this type, he has to fulfil the parameters specified in the order panel of the trading platform. For Limit Orders to buy, the trader sets the maximum price he is willing to pay for a certain quantity of a financial asset. The order will be executed when it finds a counterparty. The broker will seek to sell at or above the specified price. The main disadvantage of these types of orders is that they may not be executed if they do not find a suitable counterparty.

Stop Loss and Take Profit Orders

Both orders are known as stop orders because their function is to stop a trade at a certain point in time. Stop Loss orders are fundamental tools in trading. They serve to limit your losses when the price has taken a direction opposite to the expected direction. Stop Loss orders do not eliminate losses, but when placed correctly, they can significantly limit their size. Finally, Take Profit orders are used to automatically close the trade and lock in profits when the price reaches a predetermined level. This allows the trader to lock in profits without having to constantly monitor the position. Take Profit orders are also part of a risk limitation system. Traders usually place such orders when trading at a price level close to resistance.

Trailing stop Orders

Trailing stop orders are dynamic directives to stop trading. Traders use them when there are strong trends. These types of orders in trading are characterised by moving at the pace of the position. Let's look at it in a simpler way. You open a long position and, to protect yourself, you set a dynamic Stop Loss or Trailing stop with an allowable loss of 5%. If the asset grows in the market, the level of your Stop Loss will also grow and will always be 5% of the current price. The main advantage of these trading orders is that they prevent a large gap between the price of the asset and your Stop Loss. The duration of orders in a trade can vary depending on the trader's goals and the strategy being used.

Manually Cancelled Orders

This type of order remains active until the trader decides to manually cancel it. This can be useful when constant monitoring of market conditions and ongoing trading is required. By manually cancelling the order, the trader can make decisions based on unforeseen changes or adjust his strategy as needed.

Orders that close at the end of the trading day

These orders are designed to close automatically at the end of the trading day. That is, if the order has not been executed within the set timeframe, it is automatically cancelled. This approach can give traders peace of mind as there is no need to constantly monitor positions after the trading day has closed. Day traders use this type of order in trading. Similarly, so-called minute orders work in trading. They are valid for one minute. If they are not executed during this time, they are automatically cancelled. Swing trading strategists often use this type of minute orders. Day trading specialists are comfortable with orders that automatically close at the end of the day.

Orders that are executed within a certain period of time

Unlike orders that close at the end of the day, these types of orders in trading require a specific time window for execution. For example, a trader may place an order to buy a stock between 9:30am and 10:00am. If the order is not executed within this time window, it is automatically cancelled. This duration allows traders to take advantage of certain market opportunities at a predetermined time. Each type of order duration has a different purpose and is tailored to the trader's needs and strategy. It is important to understand the characteristics of each order type and carefully weigh which duration is most appropriate to effectively achieve investment goals in the trading market.

Customising your trading strategy

Not all trading strategies are the same, so it is necessary to customise each one. This involves customising the order settings to suit your preferences and goals. Personalisation involves setting a suitable expiry date for orders. Choose orders that are manually cancelled to have more control over our trades, or set orders that expire at the end of the trading day if we prefer more automated management.