Investors should familiarize themselves with basic order types that are universal across all trading platforms. Knowing how they work and when to use them helps get the best execution and manage risk.
This is an order to buy or sell a security at the best available price. For example, suppose the bid/ask spread in Apple Inc. (AAPL) was $180.00–$180.10, and a trader wanted to buy the stock at market. They would get an immediate fill at $180.10—the best ask price. Traders typically use market orders when they want an immediate execution.
A limit order specifies the maximum price that a trader is willing to pay for a security (buy limit order) or the minimum that they’re prepared to accept (sell limit order).
Let’s revisit the example bid/ask spread in Apple being $180.00–$180.10, but the trader thinks they can sell at a higher price. They could place a limit order at $200, meaning that their stock will not sell unless the bid price reaches at least $200. Limit orders are useful for traders who are more concerned about the price than immediate execution.
This order helps control a trader’s risk by buying or selling at the market price once a security has traded at or through a specific price.
In other words, if the security reaches the trader’s stop price, the order becomes a market order and executes at the next best available price. Let’s say a trader purchases Apple stock for $200 but wants to exit the trade if the share price falls below $150. They would place a stop-loss order at $150. If the stock drops to $150, then the stop-loss order becomes a market order, and the trades get filled at the best available bid price. Online investors should get in the habit of always using stop-loss orders to minimize risk and protect their capital.
As its name suggests, this type of order sets a specific price to close an open position at a profit. If the price of a security reaches the limit price, it will automatically trigger a sale. However, if the price doesn’t reach the limit price, then the order remains unfilled. It’s also called a buy stop order.
For example, a trader who uses technical analysis has noticed overhead resistance on the Apple chart at $180. Therefore, they decide to place a take-profit order at $179 to close their long position should the stock retest that level.
As well as these basic orders, many online trading platforms offer more complex order types, such as all or none (AON), fill or kill (FOK), and one-cancels-the-other (OCO).
Investing online allows traders easy, cost-effective access to global financial markets. Before getting started, it’s important to know what you’re looking for in an online trading platform and to conduct some basic research to ensure that the broker meets all of your investing needs and complies with all regulatory requirements. Investing online offers traders the flexibility to make their own financial decisions or collaborate with a registered investment advisor.
Depending on your trading platform, you may see what’s known as Time-in-Force (TIF) orders.
Time-in-Force (TIF) orders are special instructions that tell a broker or trading platform how long an order should remain active before it is canceled if not executed.
These instructions give traders more control over the timing and execution of their trades.
Here are some common TIF order types:
This is the default TIF for most trading platforms. The order remains active until the end of the current trading day. If not filled by then, it is automatically canceled.
Because foreign exchange is a 24-hour market, this usually means 5:00 pm EST since that’s the time U.S. markets close, but we’d recommend you double-check with your broker.
The order remains active until it is either filled or manually canceled by the trader. Yep, that’s right. A GTC order remains active in the market until you decide to cancel it.
Your broker might have restrictions on how long a GTC order can remain active (e.g. 90 days).
The order must be filled immediately in full or in part. Any portion of the order that cannot be filled immediately is canceled.
Because foreign exchange is a 24-hour market, this usually means 5:00 pm EST since that’s the time U.S. markets close, but we’d recommend you double-check with your broker.
The order remains active until it is either filled or manually canceled by the trader. Yep, that’s right. A GTC order remains active in the market until you decide to cancel it.
Your broker might have restrictions on how long a GTC order can remain active (e.g. 90 days).
The order must be filled immediately in full or in part. Any portion of the order that cannot be filled immediately is canceled.
This is similar to IOC but stricter. The entire order must be filled immediately; otherwise, the whole order is canceled.
The order remains active until a specified date. If not filled by the end of that date, it is canceled.
Control over timing: TIF orders allow you to specify when you want your order to be executed, giving you more control over the timing of your trades.
Risk management: By setting time limits, you can avoid unexpected price movements that might occur if your order remains active for too long.
Trade execution: Certain TIF orders, like IOC and FOK, can help you get your trade executed quickly if there is enough liquidity in the market.
The best TIF order for you depends on your trading strategy and goals. If you want to trade quickly, IOC or FOK might be suitable. If you are patient and willing to wait for a better price, GTC or GTD might be better choices.
OCO and OTO ) are types of conditional orders used in trading. They are linked orders that become active based on specific conditions being met.
An OCO order consists of two orders linked together. If one order is executed, the other order is automatically canceled.
OCO orders are often used for managing risk and exiting trades. For example, you could place a stop-loss order to limit losses if the price moves against you and a limit order to take profits if the price moves in your favor. If either order is executed, the other is canceled, ensuring you exit the trade.
Let’s say the price of EUR/USD is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls below 1.1985.
The understanding is that if 1.2095 is reached, your buy order will be triggered and the 1.1985 sell order will be automatically canceled
The basic forex order types (market, limit entry, stop entry, stop loss, and trailing stop) are usually all that most traders ever need.
To open a position, the following pending orders may be used:
“Buy stop” to open a long position at a price higher than the current price
“Sell stop” to open a short position at a price lower than the current price
“Buy Limit” to open a long position at a price lower than the current price
“Sell Limit” to open a short position at a price higher than the current price
