There are basically three types of orders in trading: limit order, market order, and stop limit orders, and each of these types of orders has its own advantages and disadvantages.
If you are looking for a very detailed explanation and comparison between these order types, welcome. You’ve come to the right place; this post is just for you.
In this article, we will give a quick rundown of the basic types of orders in trading. After defining and showing how it works on an exchange (Binance in this case), we will give a comparison between the three basic types of orders in trading.
These tips will help you know the type of order to opt for in your trading considering your capital and other factors.
So without further ado, let’s get in.
What is an order in trading?
An order is a request to begin or close a transaction using your broker’s trading platform if the instructions supplied by you are met. The term “order” refers to the method through which you will enter or exit a trade.
An order usually comes after market analysis, which is always followed by a long position or short position.
3 Types of Orders In Trading
When you want to place an order on Binance or any other exchange, you basically have three options: market order, limit order, and stop limit order. To explain this, we will take them one by one.
1. limit orders.
A limit order is an order to buy or sell an asset at a future price.
Now what does this mean?
As you can see in the chart below, the price of bitcoin against USDT is around 38,900. But if, from your technical analysis, you discover that the price of bitcoin will still fall to 38,000 U.S.D.T, you can place an order to buy it at that price($38,000), and such an order is called a limit order.
To do that, you just enter the price that you want to buy at and the amount of bitcoin you want, then click on “Buy B.T.C.” or “Sell B.T.C.” depending on your position, and your order will be executed once that price is reached.
2. Market order.
A market order is an order to buy or sell an asset at the current market price.
Here, when you want to place a market order, you have no option to enter a price you will buy at. You are only allowed to enter the amount of bitcoin you want to buy, and this order will be executed instantly at the current price.
3. Stop limit order.
This is an order to buy an asset at the limit price when the stop price is reached. More on stop-limit orders here.
Comparison Between the 3 Types of Orders in Trading
- A market order is executed instantly while the limit and stop limit orders stay pending until the limit price is reached.
- If the limit price of the limit order and the stop limit order are not met, the order will remain open until manually closed by the investor.
- The only difference between a limit order and a stop limit order is that a stop limit order allows you to set a stop loss that will automatically take you out of the market when your instructions are met while limit order doesn’t .
- Both limit orders and stop limit orders can be cancelled as long as they have not been executed.
- Any of these order types can be closed manually at any time when there is an inconveniency.