Basic Order Types in Trading: Market Order, Limit Order, Stop Order

Hey there, and welcome to Trading Strategy Guides!

In this article, we will go through all the different types of orders there are in trading.

There are many advantages to using these different types of orders, and we can recommend different strategies based on the order types.

Before we go into this in detail, let’s look at the five most common order types in trading:

The five types of orders:

  1. Market orders are designed to open a trade immediately at the best available market price. It can be used for both buying and selling. This Order guarantees that the trade will be executed, but the entry price can be slightly different from the last price quoted in volatile markets.
  2. Limit Order is designed to open a trade at a specific price and an expiration date. It can be used for both buying and selling. This Order only guarantees that your trade will be executed at the desired price. For longs, the trigger price needs to be below the market price. For shorts, the trigger price needs to be above the market price.
  3. Stop Order is designed to buy when the trigger price is above the current market price and sell when the trigger price is below the current market price.
  4. Stop-loss order is designed to limit your losses and avert from potentially losing all your capital. If you’re buying and the exchange rate starts to go down, the stop-loss order will automatically liquidate your position and minimize the loss.
  5. Take profit order is designed to close a profitable trade and lock in the profits.

Don’t worry we will break down each of these for you with a clear image to help you understand.

Trade Types

Below we will go through individually each different type of order with detailed examples of each.

Market Orders Explained

Like we said above, this Order you place will guarantee the trade will be executed. However, if the market is volatile, this could get ugly if you are not careful.

Here is an example of a market order

Market Order Example Trading Order Types In Trading

Think of this like how Amazon has a “one-click” order. If you like the product at that price, you get it at that price.

This is the most standard order type and easiest to understand.

Remember we said that this could be ugly if you are not careful in a volatile market?

The reason is that the price you get in at might not be the price you expected. You cannot specify what price you want in at. Yes, you get it right away, but if there is a large spread between the buyers’ bid price and the sellers’ ask price, it could cost you if you are trading in large quantities.

This isn’t a big deal most of the time, but it is something to be aware of when you are executing a market order in Forex, Stocks, or Cryptocurrency. 

What is the best Market order trading strategy?

We have a few, but we recommend you check out the best market order trading strategy we have. 

Limit order explained

As we said above, this is designed to open a trade at a specific price and an expiration date.

 It can be used for both buying and selling. 

This Order only guarantees that your trade will be executed at the desired price. For longs, the trigger price needs to be below the market price. 

Here is an example of a buy limit order:

Buy Limit Order Example

For shorts, the trigger price needs to be above the market price to place a sell limit order.

Here is a sell limit order example

Sell Limit Order Example

What is the best limit order trading strategy?

We have a variety of limit order trading strategies and this is one that we like the best.

Stop Order explained

You buy when the trigger price is above the current market price with a Stop order.

Here is an example of a buy stop order

Buy Stop Order Example

So when the price goes up and hit this you will be in a BUY trade in hopes that this will continue to go UP

Alternatively, sell when the trigger price is below the current price.

Here is an example of a sell stop order

Sell Stop Order Example

So when the price goes down and hit this price you will be in a SELL trade in hopes that this will continue to go DOWN.

There are many advantages to stop orders. One of the main advantages is that you do not need to be in front of your chart when it gets triggered. You simply set it and forget it.

This is perfect for when there is a distinct level like this:

Buy Stop Order Best Strategy

Once it breaks the level you want to buy here so will automatically trigger if you set up a buy-stop order.

We have a great buy stop order trading strategy you can try here.

Stop-loss order explained

Stop loss orders are designed to limit your losses.

 This will help you from potentially losing all your capital in one trade. 

If you’re buying and the exchange rate starts to go down, the stop-loss order will automatically liquidate your position and minimize the loss.

Here is an example of a stop-loss order on a buy trade

Stop Loss Order Example

Many traders fail to use a stop-loss in any market.

Forex, Stocks, Crypto, it does not matter what you are trading. Remember this.

Use. A. Stop-loss.

Protect yourself!

Would you rather lose 1% or 2% on a trade, or be down 96% with little hope of it returning.

There is a reason that +95% of traders fail.

Most of the blame is that they are not using proper stop losses and minimizing their losses.

Take a look at an example of where a good stop-loss should be placed.

Stock Order Types

This came from one of our favorite trading strategies. You can read the entire strategy here if you like.

Additional Stop-Loss orders

There is an additional stop loss order that is highly popular which is called a trailing stop loss.

A trailing stop loss order moves after the stop loss is already in place. Say you are trading a stock and you have a buy order set at $20 and your stop loss is set at $18.

Make sure you check out this guide on a great order flow trading strategy!

The trailing stop would get moved to $19, $20, $22, and so on as the stock will continue to climb.

Using a trailing stop loss is highly effective and is recommended.

This helps you lock in gains and stay profitable.

Here is an example of a trailing stop order placement

Minimize Risk Trading System

This is from one of our favorite strategies that you can find here

Take profit order explained. 

This is the trader’s favorite type order.

If you hit a take profit that means you hit your profit goal!

Take profit order is designed to close a profitable trade and lock in the profits.

Here is an example of a take profit order (BUY trade)

Basic Order Types In Trading: Market Order, Limit Order, Stop Order

These are common on any trading platform.

You don’t need a take-profit order, but it is good to have one if you are focusing on risk to reward ratio.

We have a great article on risk to reward strategy here that we recommend you read it will help you figure out where the best place to put a take profit order is.

Order Types Cheat Sheet

Who doesn’t love a good cheat sheet? Feel free to use the cheat-sheet below to help you decide on what order type you want to use when the time comes. Wording can be trick, it is always nice to have a visual to go off of.

Different Order Types In Trading Pdf Infographic Free (1)

Conclusion

There are many order types in trading. Trade types can be confusing so please save this article for future reference. Most traders will use these standard order types when trading Stocks, Crypto, or Forex. If you have any questions or comments please post it below! 

Thanks for reading.

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