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Orders type
CREATED: SUNDAY, 05 JANUARY 2014

Order Types

Through a simple online application, and a small monetary investment, traders are provided with
the ability to execute orders in the live markets. Doing so is facilitated by brokerage rms. This
makes it easy for anybody to set up a fund and begin executing trades in the nancial markets.

A trade consists of owning x amount of a nancial asset at a particular price until the investor
decides to release his position. At any point between owning (buying) and releasing (selling) an
asset, an investor will have a position on the market, where his fund balance is exposed to changes
in the asset quote price. The investor becomes “ at” when he no longer holds an asset.

Traders are also able to pro t from an asset decreasing in value; this is known as “short selling”.
Short selling is a more complex agreement whereby an investor will sell an asset he does not own,
by borrowing it from his broker. This is common across a variety of markets including, but not
limited to Forex, Futures, Commodities, CFD’s and major stocks.
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So quite simply, you can be long an asset until you sell, or short an asset until you buy.

An investor buys 2 contracts of Gold. If gold begins to rise in price, our investor will be “in pro t”.
He will only take his pro ts to the bank however, when he sells his gold back at a higher price (goes
at).

The opposite is true for an investor who sells 2 contracts of Coffee. With any fall in Coffee prices
our investor will be “in pro t”. However it isn’t until he buys back his 2 contracts at a lower price
that the money will be banked.

Brokers provide several order types to give their client investors the tools needed for executing and
manage trades.

In this article we will be discussing:

- Market Orders (long vs short)

- Closing/partially closing opened orders

- Pending Orders

- Stop Loss / Take Pro t

- trailing Stop Losses

Market Order

A market order is an instant transaction that is requested to be executed to the market at present
time, requesting the most current Market Price.

For example: The bid price of GBPUSD is 1.5632. Until the quote for GBPUSD changes, the trader
may request through his broker a desired contract size of GBPUSD at 1.5632.
 
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In highly liquid markets such as FOREX, price can change very fast. In many instances, price may
differ from the time a trader decides to buy at market price to the time the Buy Market Order is
actually placed. In this situation, whatever the price at the time the trader executes their market
Order, is the opening price of the position.

Close Order

Another type of Market Order is the closing of a position. As previously mentioned, a trade is a cycle
of a buy - sell or a sell - buy. This means if the investor has a long position, to go at he must sell his
position of the holding asset, and vice versa. 

Closing any Position is practically the same as opening one. Therefore, going at on a position is
essentially buying or selling.
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Partial Close

An investor may choose to reduce the amount of exposure by closing only part of his position. For
Example, You may close a half contract from a 2 contract position, resulting with 1.5 contracts
exposed to uctuating prices. The half contract just closed, is cashed back to the account balance,
according to the value of the asset at the time of the partial closure.

Pending Orders

Pending Orders are orders waiting to be executed at prede ned price. An investor may request its
broker to buy or sell an asset once it has hit a pre-conditioned price.

A pending order will last until either price meets the order conditions, or a cancellation time,
prede ned by the trader, has been reached, or the investor manually deletes their order. Sending a
Pending Order does not put the investor to any exposure or costs until price meets their pre-
determined price.

Types of pending orders:

1 Stop order
2 Limit order

A stop order is a request to execute a position in the direction of the market movement. An investor
may request to buy an asset if the asset rises to a speci c price above the current market price or
sell an asset if it falls to a speci c price below the current market price.
The opposite applies for a limit order, where an investor wishes to Sell at higher price than current
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price, or Buy at lower price compared to current price.
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Stop Loss - Keeping a prede ned Risk

A stop loss order is essentially a stop order where by an investor will pick a predetermined price
above or below current price to close his whole position.

The stop loss acts as damage control if you analysis was incorrect. On opening a position, it will
always be placed below a buy order or above a sell order. When a trade is running in pro t, the stop
loss can be placed between current price and opening price in order to preserve partial pro t.

The Stop Loss can be set at the time of broadcasting a trade, weather it was a market order or a
pending order. As the Stop Loss is a pending order by nature, the investor is freely allowed to
constantly modify it, and even delete it completely.

Working with Stop Loss is a wise move, It can reduce substantial risk and have a great effect in the
psychology of trading. Learn to use it, as it is your account’s personal body guard.

Take Pro t - Take what is provided for you by the market

Take Pro t is the opposite to a stop loss. This future price order is located in the pro t zone of a
position, higher than opening and current price for longs and lower than opening and current price
for shorts.

The take pro t will automatically close the whole position in pro t once it is hit and may be
modi ed at any time during a live market.

However, it is important you are aware of your broker’s trading policies, as some ECN brokers
cannot provide a Stop Loss/Take Pro t at market execution. In this case an investor would have to
modify the trade after the market execution is placed.

Trailing Stop Loss

A trailing Stop Loss is a simple tool used by an investor to trail a stop loss order a set amount of pips
behind market price as price moves with the direction of pro t. The Modi cation of the Stop Loss is
only in the direction of the pro t, never against it. Once price retraces back to the Stop Loss level,
the whole position will automatically be closed.
 Most trading platforms will only allow a trailing stop to be utilized once price moves in pro t by the
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de ned pip gap. However some trading platforms allow a trailing stop to take effect immediately.

Something to be aware of is: unlike other order types a trailing stop is not managed by the broker’s
servers but by the investors client software. This means a trailing stop won’t be effective if the
platform is closed or disconnected.

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