Exploring Different Order Types and Their Uses

FXOpen

In forex, commodities, and stock trading, order types dictate how trades are executed. Mastering these is like learning a new language; it’s essential for navigating the complex world of financial markets. Dive into this article to decode the tools traders rely on daily.

List of Order Types

Understanding order types is a foundational skill. Think of them as the various tools in a trader's toolbox, each serving a unique purpose. Although you are already familiar with order types, you may not know all of them. Here are 18 of the most well-known types of orders in the stock market and beyond.

You’ll find many of these types available in FXOpen’s free TickTrader platform if you’d like to test them out for yourself.

Indicative pricing only
Indicative pricing only

Most Common Order Types

  • Market: What is the order type “market?” When placed, it immediately buys or sells a security at the current market price. Traders use this when the priority is a quick execution rather than getting a specific price.
  • Limit: Wondering, “What’s a limit order in stocks?”. Here’s the answer. A limit order instructs the platform to buy or sell a security at a specific price (or better). If the instrument doesn’t reach this price, the order won't execute. It offers more price control but doesn't guarantee execution.
  • Stop (or Stop Loss): Think of this as an alert system. It turns into a market order once a pre-set level is hit. Primarily used to protect against large losses, it’s a staple for risk management.
  • Stop Limit: A fusion of stop and limit orders. When the stop price is reached, it transforms into a limit order, aiming to buy/sell at a specific price or better.

More Advanced Order Types

  • Trailing Stop: A dynamic tool. This order will trail the market price by a set distance (like a dollar amount or percentage). For example, if prices rise (for a long position), the trailing stop moves up. Conversely, if prices decrease (in a long position), it stays put.
  • Good Till Cancelled (GTC): Persistence is key. This order remains active until either it's executed or the trader cancels it. However, brokers may limit the order’s period. Useful for strategies that require more time to play out.
  • Day: As the name suggests, it's only valid for the day it's placed. If not executed by the end of the trading day, it expires.
  • Immediate or Cancel (IOC): Time-sensitive in nature. It must execute immediately. If it can't fill entirely, the unfilled portion cancels.
  • Fill or Kill (FOK): No middle ground. A FOK must execute in its entirety immediately, or it's entirely cancelled.
  • All or None (AON): It’s an 'all in' approach. The order only executes if the entire quantity can be filled, but the trade mustn’t be executed immediately.
  • Iceberg: Beneath the surface lies more. A bulk order is divided into smaller limit orders, masking the total volume. Useful for larger traders wanting to avoid market disruptions.
  • One Cancels the Other (OCO): A two-pronged strategy. Two orders are placed simultaneously, but if one executes, the other is cancelled. Effective for setting simultaneous profit and loss thresholds.

Rarer Order Types

  • Market If Touched (MIT): On trigger, it becomes a market order. It activates once a certain price is touched or passed.
  • Limit If Touched (LIT): Similar to MIT, but upon activation, it turns into a limit order.
  • Market on Close (MOC): Executes at or very near the closing price. Used by traders wanting to enter/exit positions by the day's end.
  • Limit on Close (LOC): A variation of MOC. When executed, it aims to buy/sell at a specified limit price at the day’s close.
  • Market on Open (MOO): Activates at the start of the trading session, aiming to execute at or near the opening price.
  • Bracket: A comprehensive strategy. Consists of a main order (like a buy) flanked by two opposite-side orders (an upper-bound sell limit and a stop loss). This ensures both profit targets and potential losses are managed.

Choosing the Right Order

Selecting the appropriate order type isn't just about understanding definitions—it's about strategy. While you’ll likely get by just fine with market, limit, and stop orders, there are situations where one of the alternatives listed may be preferable.

Before trying a new type, it’s a good idea to test it using a demo account. In doing so, you’ll gain a deeper understanding of how it works in practice, which can help prevent confusion and potential losses.

The Bottom Line

In summary, understanding order types can drastically shape your experience and outcomes in the financial markets. These tools, when used correctly, can offer unparalleled control over your trades. If you're ready to put these order types into action and elevate your trading journey, consider opening an FXOpen account. You’ll be able to access many of these order types and more in the advanced TickTrader platform. Good luck!

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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