Order types explained

A market order is an instruction to buy or sell at the current market price. It is the simplest and most common order type. The trader sends the order and the broker executes it at the next available price.

Market orders are used when speed of execution matters more than the precise price. The actual fill price may differ slightly from the price displayed on the chart at the moment the order was sent, particularly in fast-moving or low-liquidity conditions. This difference is known as slippage.

A market order always executes, provided the market is open. It does not, however, guarantee the price at which it executes.

A limit order is an instruction to buy or sell only if the market reaches a specified price or better.

A buy limit order is placed below the current market price. It tells the broker to buy if the price falls to the specified level. It is used when a trader believes the market is currently overpriced and wants to enter at a lower level.

A sell limit order is placed above the current market price. It tells the broker to sell if the price rises to the specified level. It is used when a trader believes the market is currently underpriced and wants to enter at a higher level.

Limit orders prioritise price over execution. If the market never reaches the specified level, the order is not filled.

A stop order, also called a stop entry order, is an instruction to buy or sell once the market reaches a specified price, in the direction of the current trend.

A buy stop order is placed above the current market price. It tells the broker to buy if the price rises to the specified level. It is used by traders who want to enter a long position only once an uptrend has confirmed itself by breaking above a particular level.

A sell stop order is placed below the current market price. It tells the broker to sell if the price falls to the specified level. It is used by traders looking to enter a short position only after a downward break has occurred.

A stop loss order is attached to an open position. It is an instruction to close the position automatically if the market moves against the trader by a defined amount, in order to limit losses.

On a long position, the stop loss is placed below the entry price. If the market falls to the stop loss level, the position is closed and the loss is realised.

On a short position, the stop loss is placed above the entry price. If the market rises to the stop loss level, the position is closed.

In conditions of extreme volatility or a market gap, the actual execution price may differ from the stop loss level.

Stop loss orders are one of the primary tools for managing risk on an open trade. In conditions of extreme volatility or a market gap, the actual execution price may differ from the stop loss level.

A take profit order is the mirror image of a stop loss. It is attached to an open position and closes the position automatically if the market moves in the trader's favour by a defined amount.

On a long position, the take profit is placed above the entry price. On a short position, it is placed below.

Take profit orders allow a trader to define a target in advance and exit the trade when the market reaches it, without having to monitor the position manually. The position closes at the take profit level as soon as the market touches it.

A trailing stop is a stop loss that moves in the direction of a winning trade, locking in profit as the market moves further in the trader's favour.

Instead of being fixed at a specific price, a trailing stop is set as a distance, measured in points or pips, from the current market price. As the market moves favourably, the stop level moves with it, maintaining the same distance. If the market reverses, the stop stays at its highest reached level and is triggered if the price falls back to that point.

Trailing stops are used to allow profits to run while still defining a floor below which the position will be closed automatically.