In trading, order types are known as the authorizations given by the investor to their broker or trading platform to execute a trade. The order types allow investors to adjust how their trades are executed, such as the price at which to buy or sell, or the duration the trade will remain active.
The main types of orders:
Market Order:
It is an order to buy or sell an asset at the current market price, that is, at a price currently offered by other traders. This order guarantees execution but does not guarantee the price.
Limit Order:
It is an order to buy or sell an asset at a specified price or better. If the price reaches the limit level, the order will be executed at the limit price or better. If the price does not reach the limit level, the order will not be executed.
Stop Order:
It is an order that becomes a market order once the price reaches a specified level (stop price). This order is used to protect capital or lock in profits.
Stop Limit Order:
It is an order that becomes a limit order once the price reaches a specified level (stop price). This order is used to set the price at which the order will be executed after reaching the stop level.
Trailing Stop Order:
It is a stop order that changes its price as the price of the asset changes. This order is used to adjust the stop level based on the market price, ensuring profit locking or loss limitation.
Examples of using order types:
Market Order:
Used to buy or sell an asset quickly and at the best available price.
Limit Order:
Used to buy or sell an asset at a specified price, if the trader is willing to wait for the price to reach that level.
Stop Order:
Used to protect capital or lock in profits in case of price decrease or increase.
Stop Limit Order:
Used to set the price at which the order will be executed after reaching the stop level.
Trailing Stop Order:
Used to lock in profits or limit losses in case the asset price changes.