#OrderTypes101 📘 Order Types 101: Introduction to Basic Types of Orders
1. Market Order
Description: Order to buy or sell at the current market price.
Advantages: Fast execution.
Disadvantages: No price guarantee; prices can change in high volatility.
Example: If stock A is trading at $100, and you place a market order to buy, you will likely buy it around $100 (could be slightly more or less).
2. Limit Order
Description: Order to buy or sell at a specific price or better.
Advantages: Full price control.
Disadvantages: Not always executed if the market price does not touch the specified level.
Example: Buy stock only if the price drops to $95.
3. Stop Order / Stop-Loss
Description: An order that becomes a market order when a certain price is reached.
Main goal: To limit losses.
Example: You buy a stock at $100 and place a stop-loss at $90. If the price drops to $90, a sell order is automatically executed to limit losses.
4. Stop-Limit Order
Description: A combination of a stop order and a limit order.
How it works: When the price reaches the stop level, a limit order is sent — it will only be executed at the specified limit price or better.
Risk: Unlike stop orders, it may not be executed if the market price does not meet the limit.
Example: Stop at $90, limit at $89.50.
5. Trailing Stop Order
Description: A stop order that “follows” the market price with a fixed difference.
Function: Locks in profit as the market moves favorably.
Example: A trailing stop of $2 on a stock priced at $100 means the stop will rise to $103 if the stock goes up to $105.
6. Good ‘Til Canceled (GTC) vs Day Order
GTC: Remains active until manually canceled (usually up to 30–90 days).
Day Order: Valid only for that trading day. If not executed, it is automatically canceled.
🔍 Why are Order Types Important?
✅ Better risk management.
✅ Getting the best price according to strategy.
✅ Avoiding emotional decisions when the market moves quickly.