Why Order Types Matter
Understanding different order types is crucial for:
- Executing trades at desired prices
- Protecting profits and limiting losses
- Trading when you can't monitor the market
- Implementing advanced strategies
- Controlling slippage and execution quality
Think of order types as your trading instructions to your broker.
Basic Order Types
1. Market Order
Definition: Buy or sell immediately at the best available current price.
How it works:
- Executed instantly (or near-instantly)
- You get the next available price
- No guarantee of exact price (slippage possible)
When to use:
- ✅ Need immediate execution
- ✅ Highly liquid markets
- ✅ Entering a strong trending move quickly
Example:
- EUR/USD currently at 1.0950/1.0951 (bid/ask)
- You place a market buy order
- Executed at 1.0951 (ask price)
Pros:
- ✅ Guaranteed execution (in liquid markets)
- ✅ Immediate entry/exit
- ✅ Simple to use
Cons:
- ❌ Price uncertainty (slippage)
- ❌ Can be expensive in fast markets
- ❌ May get poor price in illiquid markets
2. Limit Order
Definition: Buy or sell at a specified price or better.
Buy Limit: Place order below current price (buy cheaper)
Sell Limit: Place order above current price (sell higher)
How it works:
- Order sits in the market until price reaches your level
- Executed only at your price or better
- May not execute if price doesn't reach level
When to use:
- ✅ Want specific entry/exit price
- ✅ Not urgent to enter immediately
- ✅ Trading in range-bound markets
Example:
- EUR/USD currently at 1.0950
- You want to buy at 1.0900
- Place buy limit order at 1.0900
- If price drops to 1.0900, order fills
Pros:
- ✅ Price control
- ✅ No slippage beyond your price
- ✅ Can set and forget
Cons:
- ❌ May not execute
- ❌ Can miss rapid moves
- ❌ Requires waiting
3. Stop Loss Order
Definition: Automatically close a position when price reaches a specified level to limit losses.
Buy Stop Loss: Above current price (used when short)
Sell Stop Loss: Below current price (used when long)
How it works:
- Placed at a price where you want to exit if wrong
- Becomes market order when triggered
- Protects against large losses
When to use:
- ✅ ALWAYS! (every trade needs a stop loss)
- ✅ Limit maximum loss
- ✅ Protect capital automatically
Example:
- Long EUR/USD at 1.0950
- Place stop loss at 1.0900
- If price falls to 1.0900, position closes automatically
- Maximum loss: 50 pips
Pros:
- ✅ Automatic loss protection
- ✅ Removes emotion from cutting losses
- ✅ Essential risk management tool
Cons:
- ❌ Can be hit by normal volatility (if too tight)
- ❌ Slippage possible in fast markets
- ❌ May exit before reversal (stop hunting)
4. Take Profit Order
Definition: Automatically close a position when it reaches your profit target.
How it works:
- Placed at a price where you want to take profits
- Becomes market order when triggered
- Locks in profits automatically
When to use:
- ✅ Have a clear profit target
- ✅ Can't monitor position constantly
- ✅ Want to avoid greed/hoping for more
Example:
- Long EUR/USD at 1.0950
- Place take profit at 1.1050
- If price rises to 1.1050, position closes automatically
- Profit: 100 pips
Pros:
- ✅ Locks in profits automatically
- ✅ Prevents giving back gains
- ✅ Removes emotional decisions
Cons:
- ❌ May exit too early if trend continues
- ❌ Could miss bigger move
- ❌ Need to estimate target accurately
Advanced Order Types
5. Stop Entry Order
Definition: Enter a new position when price breaks through a specified level.
Buy Stop: Above current price (enter long on breakout)
Sell Stop: Below current price (enter short on breakdown)
How it works:
- Order placed beyond current price
- Triggers when price breaks level
- Used for breakout trading
When to use:
- ✅ Trading breakouts above resistance
- ✅ Trading breakdowns below support
- ✅ Entering on momentum
Example:
- EUR/USD at 1.0950, resistance at 1.1000
- Place buy stop at 1.1005 (above resistance)
- If price breaks above 1.1000, long position opens at 1.1005
Pros:
- ✅ Automatically enter on breakouts
- ✅ Catches momentum moves
- ✅ Set and forget
Cons:
- ❌ Can enter on false breakouts
- ❌ Slippage in fast markets
- ❌ May miss best entry if too far from level
6. Limit Entry Order
Definition: Enter a new position at a better price than current market.
Buy Limit: Below current price (enter long on pullback)
Sell Limit: Above current price (enter short on rally)
How it works:
- Order placed at desired entry level
- Waits for price to come to you
- Executes at your price or better
When to use:
- ✅ Entering on pullbacks in trend
- ✅ Trading at support/resistance
- ✅ Patient entry strategy
Example:
- EUR/USD at 1.0950, uptrend, support at 1.0900
- Place buy limit at 1.0905
- If price pulls back to 1.0905, long position opens
Pros:
- ✅ Better entry price
- ✅ Enter at planned levels
- ✅ No chasing the market
Cons:
- ❌ May not fill if price doesn't reach level
- ❌ Miss moves if too ambitious with price
- ❌ Requires patience
7. Trailing Stop Loss
Definition: A stop loss that moves with price in your favor but doesn't move back.
How it works:
- Trails price by fixed distance (pips or %)
- Moves up/down as profit increases
- Never moves against your position
- Locks in profits while giving room to run
When to use:
- ✅ Strong trending markets
- ✅ Want to ride trends
- ✅ Protect profits while staying in
Example:
- Long EUR/USD at 1.0950 with 50-pip trailing stop
- Initial stop: 1.0900 (50 pips below entry)
- Price rises to 1.1050 → stop moves to 1.1000 (50 pips below)
- Price rises to 1.1100 → stop moves to 1.1050
- If price reverses to 1.1050, exit with 100-pip profit locked in
Pros:
- ✅ Locks in profits automatically
- ✅ Lets winners run
- ✅ No need to manually adjust
Cons:
- ❌ Can exit prematurely in choppy markets
- ❌ Not all brokers offer it
- ❌ May need to adjust distance for volatility
8. OCO Order (One-Cancels-the-Other)
Definition: Two orders linked together; when one executes, the other cancels automatically.
Common use: Stop loss + take profit on same position
How it works:
- Place both take profit and stop loss simultaneously
- Whichever triggers first cancels the other
- Standard for most trades
Example:
- Long EUR/USD at 1.0950
- Take profit: 1.1050
- Stop loss: 1.0900
- OCO: Whichever hits first closes position and cancels other order
Pros:
- ✅ Complete trade management
- ✅ Automatic execution
- ✅ No manual intervention needed
Cons:
- ❌ Fixed targets (less flexible)
- ❌ Both levels must be set initially
9. Guaranteed Stop Loss (GSLO)
Definition: A stop loss guaranteed to execute at your exact price, even during gaps or slippage.
How it works:
- Premium service offered by some brokers
- Small fee charged (usually when triggered)
- Protects against weekend gaps and flash crashes
- Execution guaranteed at your stop price
When to use:
- ✅ Holding positions over weekends
- ✅ Trading around major news events
- ✅ High volatility instruments
- ✅ When maximum loss must be controlled
Example:
- Long EUR/USD at 1.0950
- Regular stop: 1.0900
- Weekend gap opens Monday at 1.0850
- Regular stop → exit at 1.0850 (extra 50-pip loss)
- GSLO → exit at 1.0900 (guaranteed)
Pros:
- ✅ Complete protection against gaps
- ✅ Know exact maximum loss
- ✅ Peace of mind
Cons:
- ❌ Costs extra (premium or wider stop)
- ❌ Not always available
- ❌ May limit position size
10. Good-Till-Cancelled (GTC) vs Day Order
Good-Till-Cancelled (GTC):
- Order remains active until you cancel it
- Can sit for days, weeks, months
- Most common for pending orders
Day Order:
- Order expires at end of trading day
- Must be re-entered next session
- Common in stock markets
When to use each:
- GTC: Set and forget levels for longer term
- Day: Intraday trading, specific session opportunities
Practical Order Combinations
Setup 1: Breakout Trade (Stop Entry + OCO)
Goal: Enter on breakout with automatic risk management
Orders:
- Buy stop at 1.1005 (above resistance at 1.1000)
- Stop loss at 1.0950 (55-pip risk)
- Take profit at 1.1115 (110-pip target)
- OCO links #2 and #3
Result: Fully automated breakout trade with 1:2 risk-reward
Setup 2: Pullback Entry (Limit Entry + OCO)
Goal: Enter on pullback in uptrend
Orders:
- Buy limit at 1.0905 (at support in uptrend)
- Stop loss at 1.0855 (50-pip risk)
- Take profit at 1.1005 (100-pip target)
- OCO links #2 and #3
Result: Patient entry with automatic management
Setup 3: Pyramiding (Multiple Limit Orders + Trailing Stop)
Goal: Add to winners at planned levels
Orders:
- Market order — Initial entry at 1.0950
- Buy limit at 1.1050 (add to position if continues)
- Buy limit at 1.1150 (add again if still going)
- Trailing stop 100 pips (protects all positions)
Result: Build position in trend while protecting profits
Order Execution Tips
1. Understand Bid-Ask Spread
Buy (long): Executed at ask price (higher)
Sell (short): Executed at bid price (lower)
Example:
- EUR/USD Bid: 1.0950 / Ask: 1.0951
- Spread: 1 pip
- Buy = pay 1.0951
- Sell = receive 1.0950
Tip: Always account for spread in calculations
2. Slippage Awareness
Slippage = Difference between expected and actual execution price
Happens when:
- Low liquidity
- Fast markets (news releases)
- Market orders in volatile conditions
- Weekend gaps (stop losses)
How to minimize:
- Use limit orders when possible
- Trade liquid markets
- Avoid major news if not experienced
- Consider guaranteed stops for important levels
3. Order Placement Strategy
Stop loss placement:
- Below support (long) / Above resistance (short)
- Allow room for normal volatility
- Not at round numbers (1.1000 → use 1.0995)
- Consider ATR for volatility-adjusted stops
Take profit placement:
- At resistance (long) / At support (short)
- Previous swing highs/lows
- Fibonacci levels
- Risk-reward based (minimum 1:2)
4. Avoid Common Mistakes
❌ Market orders in illiquid instruments → Large slippage
❌ Stop loss too tight → Stopped out by noise
❌ No stop loss at all → Unlimited risk
❌ Moving stop loss away from entry → Increased risk
❌ Round number orders → Prone to stop hunting (use 1.0995 not 1.1000)
Order Types by Broker Platform
MetaTrader 4/5
- Market execution
- Pending orders (limit and stop)
- Stop loss and take profit
- Trailing stop
- OCO (built-in with SL/TP)
cTrader
- All MT4/5 orders
- Stop limit orders
- Guaranteed stop loss (broker dependent)
- Advanced order types
Proprietary Platforms
- Varies by broker
- Check platform capabilities
- Some offer one-click trading
- Advanced order types on premium platforms
Quick Reference Guide
| Order Type | Use For | Entry vs Exit | Level |
|---|---|---|---|
| Market | Immediate execution | Both | Current price |
| Limit | Better price | Both | Better than current |
| Stop Loss | Exit losing trade | Exit only | Worse than current |
| Take Profit | Exit winning trade | Exit only | Better than current |
| Stop Entry | Breakout entry | Entry only | Beyond current |
| Limit Entry | Pullback entry | Entry only | Better than current |
| Trailing Stop | Protect profit | Exit only | Trails price |
Practice Exercise
Scenario: EUR/USD currently at 1.0950
Your analysis: Expecting pullback to 1.0900 support, then rise to 1.1100 resistance.
Setup your orders:
- Entry: Buy limit at ____? (Answer: 1.0905)
- Stop loss: At ____? (Answer: 1.0850, below support)
- Take profit: At ____? (Answer: 1.1095, before resistance)
- Order type: ____ + ____ OCO (Answer: Limit + Stop/Target OCO)
Risk-reward: (1.1095 - 1.0905) / (1.0905 - 1.0850) = 190 pips / 55 pips = 3.45:1 ✅
Key Takeaways
🔑 Market orders — Speed over price control
🔑 Limit orders — Price control over speed
🔑 Stop losses — Non-negotiable for every trade
🔑 Take profits — Lock in gains automatically
🔑 Stop entries — Breakout trading
🔑 Limit entries — Pullback trading
🔑 Trailing stops — Ride trends while protecting profits
🔑 OCO — Complete automated trade management
🔑 Guaranteed stops — Protection against gaps
Master these order types and you'll have precise control over your trading execution.
Next Steps
📚 Continue Learning:
🔍 Practice:
- Open demo account
- Practice each order type
- Test different combinations
- Learn your broker's platform
👉 Compare brokers with advanced order types: Best Trading Platforms
Last Updated: October 2025