t2B Coach

October 22, 2018

Order Execution in the Haywood Trading Platform

Trading is not just about buying and selling, it’s a bit more complicated then this when it comes to proper order execution and understanding how and when to use it. There are many different ways you can buy or sell using different types of orders, and each way serves a different purpose. Here are the basic trading order types, and when you will want to use them.

Market Order

A market order is the simplest order execution type. There are market orders to buy and market orders to sell. A market order gives you whatever price is available in the marketplace. For example, if you buy using a market order you will get whatever price is available from those willing to sell to you. If you sell using market order, you get whatever price is available from people willing to buy from you. Market orders are advantageous when you need to get into or out of a trade quickly such as when the price is moving quickly. The problem with market order is that you don’t know the exact price you will end up buying or selling at. If you buy an asset with a tight bid/ask spread, usually you’ll end up paying the ask price, and when you sell you’ll end up paying the bid price. In markets with low volume or large bid/ask spread, you could end up paying or selling at a much different price than expected.

 

Buy Limit Order

A buy limit is an order to buy that is placed below the current market price. The order is only filled at or below the limit price. The buy limit orders are used for when a trader wants to passively place a buy order at a specific price of their choosing or lower (due to slippage in the markets). The order is said to be filled once the execution has been made and a buy limit order can be used in reverse to get you out of a short position. For example, if a trader is short 100 shares of ABC, and they want to get out of the trade at a specific price, they can use a buy limit order to get them out at that price.

 

Sell Limit Order

A sell limit is an order to sell (or short) that is placed above the current price. The order is only filled at or above the limit price. The sell limit orders are used for when a trader wants to passively place a sell order at a specific price of their choosing or lower (due to slippage in the markets). The order is said to be filled once the execution has been made and a sell limit order can be used in reverse to get you out of a long position. For example, if a trader is long 100 shares of ABC, and they want to get out of the trade at a specific price, they can use a sell limit order to get them out at that price.

 

Buy Stop Order

A buy stop order is an execution to buy that is placed above the current price. The order is only filled at or above the stop price. This order can be used in reverse to get out of a short trade. Buy stops act like a market orders once the buy stop price is reached. Therefore, they are useful for using as a stop loss on short positions when you must get out because the price is moving against you. They are also useful for buying breakouts above resistance, but you cant be sure of the exact price you will end up buying at.

 

Sell Stop Order

A sell stop order is an execution to sell that is placed below the current price. The order will only be filled at or below the stop price. This order can be used in reverse to get out of a long trade. Sell stops act like market orders once the sell stop price is reached. Therefore, they are useful for using as a stop loss on long positions when you get out because the price is moving against you. They are also useful for selling/shorting on breakouts below the support but you cant be sure of the exact price you will end up selling at.

 

Buy Stop Limit

A buy stop limit order is very similar to a buy stop order except that it doesn’t act like a market order. The buy stop limit will only fill at the buy stop limit price or lower. If you want the to buy as the price rises, the buy stop limit order prevents you from paying a higher price than anticipated: the buy stop doesn’t offer this same protection. A buy stop limit order is useful for buying when the price breaks above a particular level (resistance) but you only want to buy at a specific price or lower when that event occurs.

 

Sell Stop Limit

A sell stop limit order is a very similar to sell stop order, except that it doesn’t act like a market order. The sell stop limit will only fill at the price equivalent to the limit price attached to the order or higher. If you to sell as the price falls, the sell stop limit order prevents you from selling at a lower price than anticipated: the sell stop doesn’t offer this same protection. A sell stop limit order is useful for selling when the price breaks below a particular level (support) but you only want to sell at a specific price or higher when that event occurs.

 

OCO Order

A one-cancels-the-other order (OCO) is a pair of orders stipulating that if one order executes, then the other order is automatically canceled. An OCO order combines a stop order with a limit order on an automated trading platform. When either the stop or limit price is reached and the order executed, the other order automatically gets canceled. Experienced traders use OCO orders to mitigate risk and to enter the market. Also be aware that when using an OCO you may require 3 times the margin in your account as you are technical sending 3 orders to the market (you initial entry order in addition to you stop order and limit order).

 

Conclusion

Getting used to all the trading orders can be a bit confusing at first, and there are more order types than this! Putting out the wrong order type when money is on the line can cause big problems. The best way to get used to these order types is to practice using them. Open the powerful Haywood Trading Platform and test drive the different types of orders in the ToroChallenge to get a sense of how these order execution work.

Signup to Become a Funded
Day Trader with trader2B