Types of Trading Orders: A Beginner’s Guide

Types of Trading Orders: A Beginner’s Guide

In financial markets (stock exchanges, forex, cryptocurrencies, etc.), every buy or sell operation is executed through an order. An order is an instruction to the broker or platform to carry out a transaction under specific conditions (price, time, quantity). Orders allow traders to control the price at which they enter or exit the market and to manage risk. For example, upon opening a position, you can place a stop-loss order to limit losses, or a take profit order to lock in gains. Knowing the different types of orders and how to use them is essential for trading success.

Market Orders

The market order is the simplest type: it indicates how many financial instruments you want to buy or sell, and the order is executed immediately at the best available price at that moment. No specific price is set—it is fulfilled with the quickest counterpart. This is useful when your priority is to enter or exit the market quickly, regardless of minor price differences.

Example: If John places a market order to buy 100 shares of ABC and the current price is €20, the order will be executed immediately at that price (or the best available).

Limit Orders

With a limit order, the trader sets a maximum price to buy or a minimum price to sell. It will only be executed if the market reaches that price or a better one. This gives control over cost or income, but execution is not guaranteed.

Example: Maria wants to buy 50 shares of XYZ, currently priced at €15. She’s not willing to pay more than €14, so she places a limit buy order at €14. The order will only be filled if the price drops to €14 or less. Otherwise, it remains pending.

• Advantage: Guarantees a price limit.
• Disadvantage: May not be executed if the market never reaches the limit price.

Stop Orders (Stop-Loss and Stop-Limit)

Stop orders are conditional orders that activate when the price hits a specific level. They’re commonly used to limit losses or secure gains.

• Stop-Loss: A price is set at which, if reached, the order becomes a market order to sell (in a long position) or to buy (in a short position).

Example: Pedro buys QWE shares at €100 and sets a stop-loss at €90. If the price drops to €90 or lower, the shares are sold automatically to prevent further losses.

However, in volatile markets, the actual execution price might differ due to gaps or slippage.

• Stop-Limit: (combined stop + limit order): It works like a stop-loss, but when triggered, it becomes a limit order instead of a market order. The trader sets two prices: a stop level that activates the order, and a minimum/maximum limit price for the sale or purchase.

Example: Ana wants to sell if XYZ falls below €50 but not less than €48. She places a stop at €50 with a limit at €48. If the price reaches €50, a limit sell order at €48 is activated. If the price drops too quickly below €48, the order might not be executed.

This protects against unfavorable movements, but there’s a risk the order won’t be filled if the market drops too quickly beyond the limit.

Take Profit Order

A take profit order is a limit order used to close a position once a profit target is reached. It ensures that profits are secured without the need for constant monitoring.

Example: Carlos buys BBB shares at €50 and sets a take profit at €60. If the price reaches €60, the order is executed automatically, securing the desired gain.

Like the stop-loss, this order may not be executed if the target price is never reached.

Trailing Stop Order

A trailing stop is a dynamic stop-loss that adjusts automatically as the market price moves in your favor. A fixed distance (in pips or percentage) from the current price is defined. As the price rises (in a long position), the trailing stop also rises. If the price falls back to the stop level, the order is executed.

Example: Laura buys XYZ at €30 and sets a trailing stop €3 below the market price. If XYZ rises to €35, the stop adjusts to €32. If the price falls from €35 to €32, the shares are sold, locking in a €2 profit.

If the price continues to rise, the stop keeps adjusting; but if the trend reverses, the trailing stop limits the downside. It is a useful tool to “follow” a trend and protect profits.

Iceberg Orders

An Iceberg order (or “hidden order”) is a large-volume order divided into several smaller portions that are hidden from public view. Only a small portion of the order—the “tip of the iceberg”—is visible in the order book, while the rest remains hidden until the visible parts are executed.

This type of order is typically used by institutional investors who want to buy or sell large quantities without significantly impacting the market.

Example: A large fund wants to sell 100,000 shares of ACME without crashing the price. It places an Iceberg order that only displays 5,000 shares in the order book. Each time the 5,000 shares are filled, another 5,000 is released until the total of 100,000 shares is completed. In this way, other market participants only see small sales and are unaware of the full volume behind the order.

The advantage is that it avoids sharp price movements; the drawback is that only investors with access to this feature can use it.

Conditional Orders (OSO, OCO)

Conditional orders are combinations of orders where one depends on the execution of another. Two common types are:

• OSO (Order Sends Order): Also called “if-done order.” A primary order is placed, and one or more secondary orders are linked to it. These secondary orders will only be activated if the first one is executed.

Example: Pedro wants to buy ABC shares if the price drops to €20. He places a limit buy order at €20. Along with it, he sets a stop-loss at €18 and a take-profit at €25. Once the buy order at €20 is executed, the two sell orders—stop-loss and take-profit—are automatically created. This way, both loss protection and profit objective are established when entering the trade.

• OCO (One-Cancels-the-Other): This means “one order cancels the other.” It consists of a pair of parallel orders: if one is executed, the other is automatically canceled.

It’s commonly used to combine a stop-loss and a take-profit, or two alternate entry strategies.

Example: Marta has already bought shares and wants to close her position either if the price rises to €30 (profit) or falls to €22 (maximum loss). She places an OCO order that includes a limit sell at €30 and a stop-loss at €22. If the price reaches €30, the shares are sold and the stop at €22 is canceled; if it drops to €22, the stop is triggered and the €30 limit is canceled.

These types of orders help automate more complex entry and exit strategies, allowing traders to manage risk without having to react manually to every market move.

Order Duration and Operational Processing

1. Order Duration (Time-in-Force)

When a trader places an order, they must not only specify the type and conditions, but also how long the order should remain active if it is not executed immediately. This is known as “time-in-force”, meaning the validity duration of the order. The main options are:

GTC (Good Till Cancelled) — Valid until cancelled

The order remains active in the system until the trader manually cancels it or it gets executed. It’s useful when there’s no rush, and the trader expects the market to eventually reach the desired price.
Example: You place a limit order to buy XYZ shares at €50, even though today they’re at €60. The GTC order will wait indefinitely until the market reaches that price (or you cancel it).

DAY — Valid for the current trading day only

The order is only active during the current trading session. If it isn’t executed before the market closes, it’s automatically cancelled.
Example: If you place a DAY order at 10:00 AM and it doesn’t get filled by the market close (e.g., 5:00 PM), it will be removed from the order book.

IOC (Immediate or Cancel)

The order must be executed immediately, at least partially. Any unfilled portion is cancelled instantly.
Example: You want to buy 1,000 shares at €10, but only 700 are available. The broker buys the 700 and cancels the remaining 300.

FOK (Fill or Kill) — All or nothing, immediately

The order must be fully and immediately executed or not executed at all.
Example: If you request 500 shares at a specific price and there’s not enough liquidity at that moment, the order is completely cancelled.

GTD (Good Till Date) — Valid until a specific date

The order stays active until a date chosen by the user. If it is not executed by that date, it is automatically cancelled.

2. Order Processing: How Orders Are Executed

Once a trader places an order through a trading platform (such as MetaTrader, Interactive Brokers, Binance, etc.), the following general process takes place:

a) Entry and Validation

Your order is submitted through the broker or platform, where it is validated to ensure you have the necessary funds or assets, and that all parameters (price, quantity, order type) are correct.

b) Sent to the Market or Order Book

• If it’s a market order, it is executed immediately against the best available offer.
• If it’s a limit or conditional order, it is registered in the exchange’s order book (or on the broker’s system) and remains pending until its conditions are met.

c) Matching and Execution

The market’s matching engine pairs your order with a counterpart. For example, your buy order is matched with someone’s sell order at the same price and quantity.

d) Confirmation and Settlement

Once executed, a trade confirmation is issued. In traditional markets like stocks or futures, settlement (delivery of assets and funds) may take a few days (e.g., T+2, which means two business days after the trade).
In markets like cryptocurrencies or forex, settlement is usually almost instant.

Comparative Table of Orders

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