Types of Entry Orders
Utilising entry orders can help automate your trading strategy by ensuring you enter the market at your desired price. This lesson explores the various types of entry orders available.
What is an Order?
An order is an instruction to your broker to execute a trade under specific conditions. For immediate execution at the current market price, you’d use a market order. For execution at a price you set, you’d use entry and exit orders. Orders are essential for flexible trading strategies and should be a key part of risk management.
What is an Entry Order?
Entry orders automatically open a position when the market hits a price level set by you. They allow you to buy or sell at specific prices without constant market monitoring. When used with stop losses, entry orders can automate trading strategies, which is especially useful for technical analysts. However, it’s important to note that while an entry order will execute if the price is met, slippage can prevent it from filling at that exact level.
There are two main types of entry orders: limits and stops. Limit entry orders are set at more favorable prices, while stop entry orders are set at less favorable prices, confirming the market’s direction. Additionally, there are variants like one-cancels-other (OCO) orders that include specific rules for opening positions.
What is a Buy Stop Order?
A buy stop order instructs the broker to buy an asset once it reaches a specified price above the current market price. This order is triggered when the set price level is met, becoming a market order that executes immediately. Buy stop orders are common in pyramiding strategies, where traders add to profitable positions to maximize gains.
Example:
Suppose Barclays shares are trading at £1.46 each. An order is placed to buy 5,000 CFDs if the price reaches £2.00. The order triggers only if the price hits 200p (£2.00).
What is a Buy Limit Order?
A buy limit order instructs the broker to buy an asset at or below a specified price lower than the current market price. This allows you to take advantage of a lower entry price if the market drops to your set level.
Example: If you anticipate Barclays shares to drop from £1.46, you place a buy limit order to purchase 5,000 CFDs if the price falls to 100p (£1.00). The order triggers only at £1.00, opening a buy position for 5,000 contracts.
What is a Sell Stop Order?
A sell stop order instructs the broker to sell an asset once it falls below a specified price. This order is triggered if the market reaches your set level, commonly used to limit losses or to enter short trades.
Example:
If you expect Barclays shares to decline from £1.46, you place an order to sell 5,000 CFDs at 100p (£1.00). The order triggers only if the price drops to £1.00, opening a sell position.
What is a Sell Limit Order?
A sell limit order instructs the broker to sell an asset at a specified price above the current market price. This order is used to enter short positions at higher prices, often in anticipation of a price reversal.
Example:If you believe Barclays shares will rise briefly from £1.47 before falling, you place an order to sell 5,000 CFDs at 200p (£2.00). The order triggers only if the price reaches £2.00, opening a sell position.
What is an OCO Entry Order?
A one-cancels-other (OCO) order involves placing two orders simultaneously. When one order is triggered, the other is automatically canceled. OCO orders are useful for trading around significant market events, where the direction of the market move is uncertain.
Example:
Awaiting the US non-farm payroll announcement, you place an OCO order to sell 10 Wall Street CFDs if the price drops to 33,450 and buy if it rises to 34,000. The market’s movement will trigger one order, canceling the other.
By understanding and utilizing these entry orders, you can enhance your trading strategy and better manage your market positions.