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Order Types

The stock markets, Forex, Options and others, have some elements in common. One of them are the types of orders that they allow to place. An order is an instruction that we carry out on how we want to manage a trade. We can place buy orders, sell orders and, in some instruments, work with more complex types of orders.

Market orders

As the name implies, these types of orders are executed at market price, that is, at the best price available at the time the order is placed.

This applies to both buy and sell operations.

The main advantage of this type of order is that your request is usually processed quickly, the disadvantage is that you do not always acquire the instrument at the price you want.

For example, if you want to buy a Tesla share at market price, you may not end up paying the current price but a higher price, this happens because the market will try to close your order at the best available price, even if that means doing it at a higher price.

Pending orders

Pending orders are not executed at market price. These orders are executed following the parameters and values that you establish. As with market orders, you can place buy and sell orders. Here are some examples:

Limit

There are 2 types of Limit orders:

  • Buy LimitIt is used to place a buy order for a price lower than the current market price. The purpose of this order is to buy at a lower price to take advantage of a possible future rise.
  • Sell LimitUsed to place a sell order at a price higher than the current market price. Its purpose is to sell at a price higher than the current market price to take advantage of a possible future decline.

Stop

There are 2 types of Stop orders:

  • Buy Stop It is used to place a buy order for a price higher than the current market price. The purpose of this order is to buy at a higher price taking advantage of a possible upside after a breakout.
  • Sell StopIt is used to place a sell order at a price lower than the current market price. Its purpose is to sell at a lower price than the current one to take advantage of a possible future decline after a breakout.

Other orders types

Stop Loss

This type of order serves to limit the potential losses of a trade. It is a reflection of how much you are willing to lose at most if the trade does not go in your favor.

For example, if you have a buy trade, the Stop Loss level will be below the current price, the opposite is the case for a sell trade.

Take Profit

Unlike the Stop Loss, the Take Profit order is used to take profits. In other words, it is the level at which you will close your positions to take the profits that have been generated up to that moment.

In the case of buy operations, the Take Profit is placed above the current price, the opposite will be given for a sell operation.

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