Lesson 22 – What are the different trade order types?

Investing in the stock market can be an exciting and profitable venture, but it can also be intimidating, especially for beginners. Understanding the different types of trade orders is an important part of being a investor. In this article, we’ll explain the most common types of trade orders used in spot trading and their functions.

What is spot trading?

Spot trading is a form of trading where the transactions are executed immediately or “on the spot”. In spot trading, the buyer and seller exchange the asset and payment on the same day, or within a few days of the trade. This type of trading is different from other forms of trading, such as futures trading, where the exchange of the asset and payment occurs at a later date.

What are trade orders?

Trade orders are instructions that investors give to their brokers or trading platforms to execute a transaction on their behalf. In other words, trade orders are requests to buy or sell an asset such as stocks, cryptocurriencies, etc. There are several types of trade orders, each with its own specific purpose, as explained below.

What is a market order?

Market orders are the most straightforward and simplest form of trade order. When you place a market order, you are simply buying or selling an asset at the best available price in the market. This means that the order will be executed immediately, and you will receive the current market price for the asset. Market orders are useful when you want to buy or sell an asset like stocks or cryptocurrencies quickly to prioritize speed and execution over the exact price you pay or receive.

What is a limit order?

Limit orders, on the other hand, allow you to specify a maximum price to buy or a minimum price to sell an asset within a time frame. This means that the order will only be executed if the asset reaches the price you have set.

What is a stop limit order?

Stop limit orders are an advanced trade order that combine elements of market and limit orders. They allow you to set a limit price at which you want to buy or sell an asset, while also setting a stop price at which the order will be triggered. In short, when you place a stop limit order, you specify a stop price and a limit price. If the stock reaches the stop price, your order becomes a limit order, and it will only be executed at the limit price or better.