Types of orders for beginners

Today I'll make a little order-guide for all our beginners :).

MARKET ORDERS

Market order is intended for traders who wish to have their orders executed immediately. The order will be filled immediately at the best price available from the order book. A large market order may have market impact and increase trade cost.

If you’re unsure what an order book is then it’s essentially an electronic list of buy and sell orders for an asset and is organised by the price level.

LIMIT ORDERS

Limit order is used to specify the highest bid price / the lowest ask price a trader is willing to accept. Traders use this order type to minimise trading costs, it’s also important to know the order may not be executed if the order price is deep out of the market.

If you’re unsure what bid and ask are then basically The bid price is the maximum price that a buyer is willing to pay for an asset and the ask price is the minimum price that a seller is willing to take for that same asset

CONDITIONAL ORDER

Conditional order is a limit order or a market order taking effect when a specific condition is met.

TAKE PROFIT AND STOP LOSS ORDERS

Take profit and stop loss orders are an exit strategy that traders place ahead on positions to ensure timely and automatic exit. Stop loss order is used as a risk management tool to limit the loss of a position.

Examples can be:

• Take Profit Market Order: Once price reaches take-profit price, a market order is placed immediately
• Stop Loss Market Order: Once the price reaches the stop-loss price, a market order is placed immediately
• Trailing Stop Loss Order: Once the trailing distance is set, when price reverts to reach the trailing distance, a market order is placed immediately.

SLIPPAGE

It’s important to touch on slippage whilst on the topic of orders. Slippage tends to occur when the market is highly volatile and market orders are used. It is essentially the difference between the expected price of a order and the price at which the order is executed. Limit orders can help prevent slippage but there is a risk of the order not being executed and can occur if the market fluctuates quickly due to small window of time for the order to be executed.