Types of orders in Trading
Before we talk about management of money and risk management, we must make mention of the types of orders that exist and their uses to understand some of the concepts that we will later see.
The brokers have various types of orders to enter and exit a trade, some have their own, so we only mention the most used. There is an order better than another, since all are useful depending on the interests and goals that we have for each operation.
Types of orders:
ORDER MARKET: an order to buy or sell as quickly as possible, a financial instrument at the current market price. This type of order ensures the purchase or sale, whether that is immediate. What is not guaranteed is the price, since that is the one that is available at that time and may vary in just a matter of seconds, especially on days very volatile. Usually, the purchase is made by the offer price (Ask), and sold at the demand price (Bid).
LIMIT ORDER: is an order to buy or sell a financial instrument at a specified price, are often used to buy or sell shares. This type of order does not guarantee purchase or sale, as the broker only to buy or sell when the price reaches the value specified in the order. In this way, it will be executed at a price equal or better the one that has been established, always and when there is supply and demand. You can execute it at a lower price (in the case that it is a buy order) or higher (in case it is a sell order) than the set if you are running at the time of launch.
There are different types of Orders:
Buy Limit: this is used to buy at the price “Ask” equal to or less than that specified in the order, because in this case the current price is higher than the value specified in the order.
Buy Stop: it is used to buy at the price “Ask” equal to or greater than that specified in the order, because in this case the current price is lower than the value specified in the order.
Sell Limit: is used to sell at the “Bid” price equal to greater than that specified in the order, because in this case the current price is lower than the value specified in the order.
Sell Stop: it is used to sell at the “Bid” price equal to less than that specified in the order, because in this case the current price is just high than the value specified in the order.
Buy Stop Limit: ésta orden es la combinación de una orden stop con una orden de compra con límite («Buy Limit»).
Sell Stop Limit: esta orden es una orden stop para colocar una orden de venta con límite («Sell Limit»).
ORDER STOP LOSS and TAKE PROFITorders stop loss and take profit is used to protect the operation, preserving our capital (stop loss), and taking profits if we achieve our targets (take profit). The Take-Profit order, which is executed when the financial instrument price has reached the level that we specify, performed the complete closure of the position.
The stop loss can be sent in two ways:
1. Send it after sending our leading order (hence, end up being two orders)
2. Send it in the same moment we send the order to buy or sell. This is possible in the majority of the brokers and the platforms, but you need to make sure that it is so.
ORDER TRAILING STOP (trailing STOP): Is a stop order that follows price trends. If the price goes in the direction that we want, the stop loss is moving automatically with the price movements, at a distance that we have previously decided and placed the order. Its function is to protect part of the profits already accumulated in a winning trade.
When we place an order, in addition to choosing the type of order we will have to choose its duration or when we want to run. There are several options:
ORDER DAY: Means the order of the day, so expires at the end of the current session. If you do not get to run, the order is automatically cancelled.
GTC (Good Til Canceled): This order will be active in the market until it is executed (if today does not run, you can run morning or past), or until the trader cancels it. Generally, the broker, the override automatically if you do not have been performed between 30 and 90 days.
ORDER GTD (Good Til Date): This order will remain active in the market until a specific date that we select. The order will be active until its execution or until its cancellation.
ORDER ATC (At the Close): This order is executed at the closest price possible to the close of the market.
ORDER ATC (At the opening): This order will be executed at the opening of the market, does the opposite orders to ATC. If you do not get to run, for some reason, in the opening of the market the order is automatically cancelled.
ORDER IOC (Immediate or cancel): This order is one that the whole or a part of it is executed immediately. If you do not get to run, the order or the outstanding part thereof not executed is automatically canceled.
ORDER AON (All or non): This order is executed in its entirety or does not run, does not allow partial executions.
ORDER FOK (Fill or kill: This order is executed on the whole but immediately, may not remain pending.
The type of order and its duration you will need to choose your and will depend on three things:
Where is located the price.
Where we want to run the operation.
If we want to go long (to the upside) or short (downward) in the operation
Usually, they are used as well:
1. Above the current price (Buy stop – an Order conditional)
If our goal is to buy above where is the price at that time, the entry then it should be with a purchase order conditioned as buy stop, stop loss is a conditional sale a sell stop and the take profit a sale limited.
2. Below the current price (limit Order)
If our goal is to buy below where is the price at that time, the entry then it should be with a purchase order, limited stop loss and a limit order and the take profit a sale limited.
1. Below the current price (Sell stop – an Order conditional)
If our goal is to sell below where you will find the price at that time, the entry then it should be with an order of conditional sale sell stop, stop loss and a buy conditional buy stop and the take profit a limited purchasing.
2. Above the current price (limit Order)
If our goal is to sell above the price at that time, the entry then it should be with an order of sale limited, the stop loss of a buy conditional buy stop and the take profit a limited purchasing.