Types of trading orders

• Market order: This order enforces the selling or buying of the security immediately. However, it does not provide a guaranteed price for the transaction. The order is executed at the current bidding price or ask price and does not consider the price history of the order. For a highly liquid stock, there are high chances of slippage if a market order is executed. However, this type of order can work well with less liquid stocks.

Market orders are ought to be executed as quickly as possible and it can be easily created by hitting a sell/buy button on the software provided by the brokerage. Creating a market order requires very little effort from the brokers’ end and is therefore the cheapest order. Brokerages charge the lowest commission on market orders.

• Limit order: A limit order can be executed at a fixed price or better, unlike a market order. A trade is only carried out if the price of financial security is nearby or equal to the submitted price by the trader.

There are two types of limit order:

• Sell Limit Order: this type of order is only executed if the price of financial security is equal to or higher than the chosen price for order execution.
• Buy Limit Order: This type of order is only executed if the price of financial security is lower or equal to the chosen price for order execution.

A sell limit order ensures that the day trader will only incur a profit or minimize loss and a buy limit order ensures that the order will be transacted only at the set price or lower. A limit order ensures selling or buying at a limited price but does not ensure that the order position will be filled for sure.

• Stop-loss order: Setting a stop price for the execution of the trade when the price moves past a certain price is referred to as a stop-loss order. These kinds of orders help minimize the risk by capping the price on which trade has to be executed. When the price of financial security crosses the stop price, a stop-loss order becomes a market order or limit order.

There are two types of Stop-loss or stop order:

• Sell stop order: A sell stop order is executed by a trader at the stop price that is lower than the market price to save oneself from the loss or protect a profit margin on the security.
• Buy stop order: A sell stop order is executed when the stop price is above the market price. Traders execute buy stop order to save oneself from the loss or creating profit on the securities that are sold short by them.

A stop-loss order ensures the entry and exit from a trade at a particular price, thereby protecting the profit or limiting the loss of a day trader. Such orders are generally created while working with highly volatile securities by a day trader. Stop-loss orders can create big profits or a day trader if executed with correct technical analysis and the right mental psychology.