Types of Financial Market Orders | When Should I Place My Trades?
The market is open! You have analyzed your favorite pairs, identified trend and a preferred entry point. But how the hell do you ensure price doesn’t pass you by while you rush for a cup of coffee/responding the emails you’ve been putting off for days!? Pending orders! Oh, wait a minute, you like the current price? Lucky guy! Market order/ instant order it is! In this article we will discuss market, limit, and stop orders. Each type serves a unique purpose and can be used in different market conditions to help you make informed decisions.
Market orders are used to buy or sell securities at the best available price. When a market order is placed, it is immediately executed at the current market price, regardless of whether it is a buy or sell order. This type of order is often used when a trader needs to quickly enter or exit a position. Pending orders comprise of limit (buy/sell limit) orders, and stop (buy/sell stop) orders.
Limit orders are used to buy or sell securities at a specific price or better. For example, you may place a buy limit order at $50, which means that the order will only be executed if the price falls to $50 or lower. Conversely, a sell limit order would only be executed if the price rises to the specified level or higher. Limit orders are often used to protect against downside risk or to capture gains in a rising market. In simple terms, the very concept of buy low, sell high!
Stop orders, also known as stop-loss orders, are used to limit potential losses in a trade. A stop order becomes a market order once the specified price is reached. For example, a trader may place a sell stop order at $50, which means that the order will only be executed if the price falls to $50 or lower. This type of order is often used to protect against potential losses in a falling market. Orders are often placed in the direction the market is trending, higher for a buy stop, lower for a sell stop.
In conclusion, market, and pending (limit and stop) orders are all useful tools that you can use to manage risk and achieve your investment objectives. A good understanding the different order types, when, and where to use them is an important aspect of successful trading and will help you make more informed decisions and better navigate the ever-changing world of financial markets.