6 Essentials about Trading Order Types!

For video version go to: https://www.youtube.com/watch?v=oVmj_a6sbVQ
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Use the following information at your own discretion.

This is important for those of you who want to trade on the financial markets. I will now present some of the most common order types out there. Think carefully about this, since they have very different implications for your trading strategy.

1. Market Order
Basically, this one trades your e.g. stock at the current market price, whatever that price may be. The benefit is that your order is very likely to be filled. The disadvantage is that you are buying/selling blindfolded, so if we have a little flash crash, then you might e.g. sell at a terrible price.

2. Limit Order
Unlike a market order, a limit order have you specify a certain price you want to buy or sell your stock at. The benefit is that you have full control. The issue is that your order might not get filled.

3. Stop Loss Order
This is a market order triggered if (and only if), your stock trades within your predefined target range. The benefit is that you can trade without having to watch the charts 24/7. A big risk is that it turns into a market order, which is good if you really want to get it executed, BUT you might get it e.g. sold for a horrid price.

4. Stop-Limit Order
This one is similar to stop loss orders in that you specify a trigger price, you ALSO specify the lowest price you want to trade your stock. The benefit is that you can finely control your gains and losses. The disadvantage is that, since you set multiple preconditions, your order might not get filled at all.

5. This IS a HOT TOPIC!
There are many very strong opinions about which order type to use. Some professional traders are deeply passionate about the benefits of stop-limit orders, while others think its the work of the Devil… and visa versa. On the other hand, some think YOU ONLY should use limit orders and that market order is pure evil etc. Read up on this before you decide! Granted, we have a near consensus that market orders, in particular, are risky… since they have unleased financial horrors in flash crashes and during other volatile times.

6. Time of Execution: Intra-day or Good Until Canceled (GTC)?
When you place an order, you need to specify how long it should be on the market. An intra-day order is cancelled after the trading day, while a GTC is active from 30-90 days (ask your broker, since it can vary). However, BEWARE the cost of commissions!

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