“May I take your order?” What are the main trading order types in trading, and when to use them

• Market order
• Pending orders
  • Limit order
  • Stop order
  • Stop Limit
• Execution order types
  • Good Till Cancel
  • Immediate Or Cancel
  • One Cancels the Other (OCO) orders
• Hidden order
• Conclusion

When engaging in trading, be it Forex, stocks, digital asset, or CFD assets, brokerage clients are presented with many opportunities to open and close trades, depending on the situation that unfolds in the market. Simply put, the term ‘order’ means the way to enter or exit a trade. However, as the domain evolved, brokerages began to offer more sophisticated order types for demanding clients to build complex market strategies. The number of order types the platform offers affects the degree of traders' freedom and, accordingly, the overall attractiveness of the brokerage service itself.

This article will briefly explain basic and advanced trading or stock order types supported in Soft-FX products and solutions.

Market order

A market order (a simple Buy or Sell order) is as simple as a stock order can be. A market order represents a type of order designed to buy or sell a financial instrument at the best available price. Buy orders are executed at the ASK price, and Sell orders are executed at the BID price.

A market order type can be compared to purchase on Amazon or eBay, only instead of goods, the customer receives a certain amount of currency.

When to use

Because of the slippage phenomenon, savvy investors prefer not to use market orders too often because the broker can’t guarantee that the last-traded price will be the price a client pays or receives. This type of order is usually reserved for the case when a sudden market movement occurs, and an asset must be urgently sold or bought at the current price.

Pending order

A pending order is an order to buy or sell a financial instrument at pre-defined conditions in the future. When a pending order is placed, the execution price can be higher than the current ASK price (for Buy orders) or lower than the current BID price (for Sell orders).

This type of order can be divided into several subtypes.

Limit order

A Limit order is executed at a specified or better price. A Buy Limit order can only be executed at the requested or lower price, and a Sell Limit order can only be executed at the requested or higher price.

Stop order

A Stop order is placed below the current price for Sell positions and above the current price for Buy positions. When the price reaches the Sell Stop or Buy Stop level, the position automatically opens at the current market price, similar to the market order execution. However, the order execution price may differ from the price set.

Stop limit

A Stop Limit order combines two orders: Stop and Limit. When a client opens a Stop Limit order, they need to specify two prices: Stop and Limit. After the Stop order is activated at the Stop price, a new Limit order with a new ID is created. Then the order is executed as a regular Limit order, at a specified or better price.

When to use

As is clear from the description above, pending orders allow clients not to spend 24 hours in front of the monitor waiting for the right price value. Also, these types of orders to a large extent remove the psychological pressure from stock, FX and other investors, which is extremely useful for both beginners and professionals. The main thing in working with pending orders is the correct identification of the entry and exit prices.

Execution types

These complex (or weird, to some FX traders) order types are determined by the way they are executed. Depending on the strategy, a client can also set different execution values for their orders.

Good Till Cancel

This type simply remains active until the trade is executed or canceled.

Immediate Or Cancel

Immediate or Cancel order requires all or part of the order to be executed immediately; otherwise the order (or any unfilled parts of the order) will be canceled.

Note that only Limit orders can be IOC orders.

One Cancels the Other (OCO) orders

OCO orders allow linking two conditional orders, though only one of them will be executed. These orders are interconnected by the mutual cancellation function. That is, when one of these orders is executed, the other is automatically deleted by the system.

When to use

Execution order types are not essential for all traders, even professional ones. However, demanding traders can use these orders for risk control and entering the market. The main thing to remember is that the execution conditions must be set in strict accordance with the chosen strategy.

Hidden order

Hidden orders are not a full-fledged type of order, it is rather a feature, but an important feature that traders can use as an advantage. If a trader flags his order as hidden, other traders can't see the order volume in the Depth of Market. Hidden orders also have a subtype, the so-called Iceberg order, when the Depth of Market displays only a certain proportion of the total order volume.

When to use

The hidden order mechanism provides a more comfortable workflow for traders who don't want to reveal their trading volumes in the Market Depth.

Bottom line

It is important for any trading platform to have an extended list of order types available to attract any trader, from beginners to experienced traders. For clients, it's important to remember that before setting up a cumbersome system with sophisticated orders, they need to make sure they understand the concepts behind those orders, as well as the degree to which they fit their trading style and the trader's emotional profile.