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What will you learn from this article?
There are many types of orders in trading because they serve different purposes. Many things you can learn depending what order you choose. These include the price at which your order will be filled, how long an order can remain open, or when an order is canceled by the execution of another order.
The trade ticket (or order window) is the sell/buy (or bid/ask) window for your instrument of interest. Click on where to buy or sell and you get a ticket. Now we’ll look through the order types and how you might use them for various entry and exit strategies in your trading:
One of the most critical aspects of trading is knowing the right time to open a trade. Financial markets offer multipple alternative of when to trade and at what price.
How does a market order work? Making a trade based on the market price.
A market order will fill at the next available price after you click the submit button. It does not wait for other conditions to be met. All you have to do is enter the details of the order you wish to give and CFI will execute your order at the next available price.
Click on your chart to open the buy/sell window for a market order. The ticket or type is default to market exectution. Once you have decided the volume(s) you want to trade, you may also assign certain conditions to the order that will basically tell your trading platform when you are wanting to close that order.
A limit order is the order to buy or sell at a price you enter as the trader. Choosing the limit order type, you will be presented a set of rules to fill in values for when you wish your order will be completed and when you wish it should be closed.
You can only place limit orders below the ask price when. buying, and above the bid price when selling. A Limit order also does not suffer from negative slippage (meaning that you always get filled at your requested price or better)
In this image, it represents the interface of our platform.
Price: This is the price at which you want the trade to fill. If you want to put a time limit on your price, you would enter a value for expiry (in the example, one day from now). Or you can choose a GTC-good to cancel with no expiry. The order is pending, meaning it does not affect your account total or margin in trading until the conditions you entered are filled. All those (you have given) values get attached to your order If it gets triggered.
(You are always able to cancel your limit order until you have filled the order) as well Increasing the number of lots (or changing the price or expiry) is known as "amending" the order.
For instance, the price is bouncing back and forth between two strong levels of support and resistance. You have concluded you do not want to enter the trade right now, as it appears the market will go down in roughly an hour. If it does, you also expect that it’s probably going to go down to the next major level of support and then go back up. You determine that you want to trade to buy near the level if this happens.
The catch is that you don’t want to be sitting at your computer all morning, waiting to see if this will happen. Using a limit order can also allow you to get your trade off at a specific price and see if you were right. The trade size and the target price are to be filled out in the information above. You will also be able to set Risk management orders based on the position generated by a filled limit order.
And if the price does indeed fall below your set price limit the order will be executed at that price.
A stop order is an instruction to execute a trade in an instrument when that instrument touches a pre-determined trigger price: i.e., a sell-stop order has a specified trigger price below the current market price and a buy-stop has a trigger price above the current market price. With a sell stop order or buy stop, it is possible to set the volume, price and time in force. And you can attach trade closeout orders to this position if the stop order to open a position.
A limit order differs from a stop order in that the limit order only permits the trade to be executed at the specified limit price or better. On the other hand, with stop orders, you will execute the order at the market price which may cause your order to get filled at a price which is really away from the one you defined. So if the market you went up or down on the wrong way to your stop order price, you would be subject to an in general price better than the stop price in your limit.
In other words, stop orders may experience negative slippage, which means that you won’t necessarily receive the price you requested.
To exit your trade in the most basic manner, you can manually close it at the next available market price. This comes in handy if you are actively watching your trades or just want to quickly close your position.
It is naturally recommended to keep track of your trades at all times, but this is simply unreasonable. You'll never watch your trades 24 / 7 ﹣ and sometimes the price can change in a split second.
Take-profit orders (or T/P) are orders that you can set with a price at which you are willing to close an open position with a profit. If that price level is not hit, the take-profit order will remain unfilled.
For example, let’s say you wanted to buy GBP/USD at the market at 1.2900, and you believe the market will safely go up another 40 pips. To calculate your take-profit window, simply add this pip value. Or, you can enter the price at which you want to take your profit, which is “1.2940.”
Having a profit goal in advance can also help curb greed, many traders are unable to fight their greed and keep the position open longer than originally intended in hopes for bigger profit. The truth is that trends will reverse and a trade that seems 'in the money' can quickly become a losing position. A take-profit order might help in adhering to an exit strategy.
A stop-loss order (S/L) is an order to sell an asset when it reaches a certain trigger price set by the trader, at the market price. The primary use of this order type is to protect loss and manage risk exposure.
Building on the example we used in the take-profit order above, let’s assume you have already specified your take-profit price. You really need to deal with the risk involved in this trade, because you could be wrong about what you expect the price action to do.
let’s say that you’re not prepared to lose more than 20 pips. This pip value can be added to the stop-loss window, or in reverse you can also set the specific price (1.2880) for the 20-pip loss, whichever suits. When this price has been breached, this order would automatically close your position at the market price to avoid any more losses. You may hold on to a losing trade, hoping it turns around. This tendency is known as a ‘sunk-cost effect’.
You only want to take a slight risk to gain a reward. Now obviously each one has their risk level or risk they are able to take, and nobody trades thinking his trades will be losing trades.
Loss trades are inevitable and how to counter them is to be very aware on your own risk appetite and your risk/reward ratio. Implementing risk management measures is a good practice. A stop-loss order helps to understand and mitigate risk, which is why step 3 is to set the stop-loss, and a take-profit order helps combat an unrealistic wish to achieve great wealth.
The buy liquidate price and sell open price is known as the price spread, and it's a cost of trading.
You press the buy or sell (buy or sell) and a market order will get you in at the best Offer price (for buy), or Bid price (for sell). If you were to close your trade now, you would have to do so on the opposite side. So for example you would be closing on the sell price if you are long from buying at market. So if the GBP/USD offer price to buy is 1.3333 and the spread is 6 pips then your buy order will be filled at 1.3333, but the price that you could immediately sell at would be 1.3327 (1.3333-0.0006 = 1.3327).
Market Order: A market order that is either to buy or sell a forex pair will allow you to enter the market at the current price that is available to you.
A limit order can be applied when you want to set an order that will execute only once it reaches a certain price point either above (when selling) or below the current market price (when buying).
A limit order lets you trade even when you’re not watching your charts. It might get triggered in the future when for example you do not have free time to make a trade.
A stop order is an order that becomes active when the exchange rate of a certain forex pair reaches a certain predefined price determined by you. Now when the stop is triggered, it becomes a market order and fill at the best price available.
A stop order is employed to minimize losses using a stop-loss or to solidify profits using a trailing stop.
Disclaimer: The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.
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