Traders open and close positions via the use of orders. An entry order, as you may naturally derive from the term, is an order which is used for opening a position, while an exit order (or close order) is used to close the position. 

What is an order, you might ask? An order in trading is an instruction to execute a trade, allowing you to tell your broker or trading provider when and how to open or close positions. Mastering the various types of orders is crucial for navigating the markets effectively.

Types of Orders

Here we will try to briefly outline and describe the standard types of orders you might use in day-to-day trading with Forex Brokers, Stock Brokers and Prop Firms, starting with the simplest – market orders.

Entry Market Orders

A market order instructs your provider to execute a trade at the best available price at the moment. This means that your priority is to enter into a position now, rather than doing so at a specific price. As a result, depending whether the market moves in any direction in the duration of your order execution, you may experience positive or negative slippage. Market orders can be used as opening or closing orders.

Entry Pending Orders

If the current market price is not to your liking and you wish to enter into a position at a specific price, you can use entry pending orders. These orders automatically open a position when the market hits the predetermined level set by you. This can also give you peace of mind, as you will not be required to constantly monitor the markets.

There are two types of entry pending orders: entry limit and entry stop orders. Depending on where your requested price is relative to the current market price, they can be one of the following:

1. Buy Stops – to go long (buy) when the requested price is above the market;
2. Buy Limits – to go long (buy) when the requested price is below the market;
3. Sell Stops – to sell short when the requested price is below the market;
4. Sell Limits – to sell short when the requested price is above the market.

Entry Stops vs Entry Limits

In trading, stop and limit are both pending orders which are activated (triggered) once the market price reaches the predetermined (requested) price. However, the purpose of these orders and the mechanics behind them are different.

A limit order specifies the least acceptable price for the transaction to take place. As a result, the limit order can be filled only at the requested or better price. In traditional finance a limit order can be seen by market participants and filled once someone is willing to fill that price. 

A stop order triggers an actual order when the specified price has been traded. Once the requested price is reached, the order is triggered and is transformed into a market order. This, as mentioned above, is an order to enter the market at the best available price at the current moment. As a result, stop orders are generally filled at requested or worse price. In traditional finance a stop order will not be seen by market participants but will be triggered when the stop price has been met or exceeded.

Order Duration

When placing an order, traders can usually specify the duration for which it will be active. Different platforms offer different order duration types and their labeling may also somewhat vary. Therefore, be sure to check the options in the platforms you choose to trade on. 

1. Good ‘Til Canceled (GTC) – The order remains active until it is triggered, manually canceled, the market expires, or timeouts by preset system time limits. This can mean the order stays active for weeks or months;
2. Good ‘Til End of Day (GTD or EOD) – The order automatically cancels at the end of the trading day. This is quite useful if you believe the market can only provide a short-lived opportunity and do not want to take on unnecessary risk;
3. Good ‘Til Time (GTT) – This option allows you to specify the exact time and date for the order to remain active. If the market hits your requested pricel within this timeframe, the order triggers, otherwise, it is canceled.

For further reading you can visit our FPT Trading Academy​.