In this glossary, I will roughly explain the 5 principal trading order types that are used regularly by investors and traders, making it easy for you to understand. Not only I will explain how they work, but I will also explain in which situation they are a good use.
Limit order
noun
A limit order allows an investor to buy or sell securities at a certain price. As soon as the system finds an order matching the price stated, the order will execute. For example, let's say someone placed a sell order at 100$ even though the market price is at 90$. As soon as the system finds an opposite order, a buy order, at that exact price, the order will execute at that price. So if someone places a buy order at 100$ the order will be fulfilled.
Example: I bought this stock at 177$ with the help of a limit order. It took a while to fulfil that order since the market price is currently at 183$.
en: Ordre limite
Market order
noun
A market order is when you buy or sell a security at its current price. It is the most used type of order since it's the simplest one. It is good to use in a situation if you want to sell or buy a stock on the spot.
Example: I sold my holdings at the market price this morning with the help of a market order.
A stop limit is a combination of a stop market order and a limit order. It will execute itself once the market price reaches a defined price, which will then trigger a limit order at a certain price. Let's say someone placed a buy stop limit order at 200$ for a price of 198$. As soon as the stock reaches 200$, the order will trigger itself as a limit order of 198$. So as soon as the algorithm finds a sell order matching the buy order, meaning it would need to be a sell order for 198$, the order will get fulfilled.
Example: If my stock falls below 100$, I put up an order to sell it at 103$.
en: Limite stop
Stop market
noun
A stop market is an order that executes itself once the price of a security reaches a defined price, which will then trigger an order at the market price. It is mostly used when you expect a security to fall below a certain price, and you want to sell it to protect yourself from possible losses. It is also used to buy a security if it goes higher than a certain price, and you think it will continue rising.
Example: If my stock falls below 100$, I put up an order to sell it at the market price.
A trailing stop allows a trader to either buy or sell a security once it moves a certain value away from its value at a certain length of time. I will use cryptocurrencies as an example for this one since it is very volatile and this type of order is more often used in that market. People often put trailing stop order to protect their gains from a cryptocurrency if it falls. So, let's say you bought a coin at 100$ and you put a trailing stop with a value of 5$. If the coin would be to fall below 95$, the market order will execute and sell you holdings. On the other side, if the coin rises to 120$, the trailing value will update to 115$, and if the coin falls from that point to 20$, the order would've triggered at 115$, so you would've protected your profits from the fall of the price.
To understand this one, I had to do some research. I mainly got my information from this internet user, who explained the trailing stop concept. https://qr.ae/pGQpy0
Example: If my holdings fall below 10$ of its price, my holdings will sell automatically.
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