Trading Order Types: Market order, Stop Order, Limit Orde

1. Market Order: 

A market order is the simplest type. It buys or sells immediately at the best available price.

When to use: When speed matters more than price, and you want immediate execution of your order.

Example: Imagine EUR/USD is trading at 1.1578, and you want to buy it right now, then you would place a market order, as it executes instantly at or near that price.

Pros: Fast order execution.

Cons: You might experience slippage in fast markets.

2. Limit Order: 

A limit order allows you to set the price you would like to buy or sell. The trade will only execute if the market touches your price or better. 

When to use: If you want to open a buy trade at the limit price or lower or open a sell trade at the limit price or higher.

Example: Gold is at $2,050, and you want to buy at $2,000. Place a buy limit order at $2,000, and wait.

Pros: Better control of entry/exit price.

Cons: The trade may never get executed if the price doesn’t reach your level.

3. Stop Order: 

A stop order triggers a market order once the price hits a specific level. It’s often used as a stop-loss or to catch breakouts.

Stop-Loss: Safeguards your account against larger losses by automatically closing a trade.

Stop Entry: Allows you to buy after the price breaks above resistance or sell after price drops below support.

Example: You open a buy trade of oil at $80 today and want to keep your loss limited to $75. You would then set a stop-loss order at $75. If oil falls to $75 it will sell automatically and you will be protect from large losses which would have been incurred without the stop loss.

Pros: Automatic risk management.

Cons: May execute at a worse price during high volatility.

4. Stop-Limit Order: 

A stop-limit order combines a stop order and a limit order. Once the stop price is reached, it places a limit order instead of a market order.

When to use: If you want to enter a trade but avoid slippage.

Example: NAS100 is trading at 15,900. You believe a break above 16,000 means strength, but you don’t want to buy above 16,020. You set a stop at 16,000 with a limit of 16,020.

Pros: More control over execution price.

Cons: If the price jumps past your limit, you might miss the trade.

5. Trailing Stop Order: 

A trailing stop order is like a stop-loss that moves with the market. It locks in profits while letting the trade run.

When to use: To ride trends without giving back gains.

Example: You open a buy trade of crude oil at $70 with a trailing stop of $2. If oil rises to $75, your stop moves from $68 to $73, locking in $3 profit if prices reverse.

Pros: Protects profits without manually adjusting stops.

Cons: Can be tricky in choppy markets as small swings may close your trade early.

6. Good Till Cancelled Order:

A GTC order is valid until you cancel or it gets filled. GTC orders are in effect until canceled, unlike day orders, which expire after the trading session is over. GTC orders will wait as long as it takes to get where you need it to be.

When to Use: For long-term setups.

Example: You want to open a buy trade of silver at $20 and it is not there yet. This could take weeks to get there. You simply enter a GTC limit order, and the order sits and waits until the price touches $20.

Pros: No need to re-enter orders day after day.

Cons: You could potentially forget about old orders and then trigger them later.

7. One-Cancels-the-Other Order:

An OCO order links two orders together. If one executes, the other automatically cancels.

When to use: For breakout trading in either direction.

Example: EUR/USD is in a tight range. You set a buy stop above and a sell stop below. Whichever direction it breaks, one order fills and the other is cancelled.

Pros: Great for volatility or uncertain direction.

Cons: Needs proper planning so you don’t overcommit.