Orders are critical tools for any type of trader and should always be considered when executing against a trading strategy. Orders can be used to enter into a trade as well as, help protect profits and limit downside risk.
Understanding the differences between the order types available can help you determine which orders best suit your needs and are best suited to help you to reach your trading goals.
A market order is the most basic order type and is executed at the best available price at the time the order is received.
Market Order Types
A limit order (also referred to as a “take profit” order) is an order to buy or sell at a specified price or better. A sell limit order is filled at the specified price or higher; buy limit orders are executed at the specified price or lower.
Limit orders allow you the flexibility to be very precise in defining the entry or exit point of a trade. Keep in mind that limit orders do not guarantee that you will enter into or exit a position, because if the specified price is not met, you order will not be executed. A limit order that is attached to a currently existing open position (or a pending entry order) with the purpose of closing that position may also be referred to as a "take profit" order.
- A stop order triggers a market order when a predefined rate is reached. A buy stop order triggers a market order when the offer price is met; a sell stop order triggers a market order when the bid price is met. Both stop orders are executed at the best available price, depending on available liquidity. Stop orders, also called stop loss orders, are a frequently used to limit downside risk.