You need to make an order by yourself in CFD trading. So, it is crucial to be familiar with different order types. This post will explain what an order is, and then delve into the fundamental order types including:

• Market Orders: Executed immediately at the best available price.

• Pending Orders: Executed when the price reaches a predetermined level.

We'll further break down pending orders into:

• Limit Orders: Buy at a price lower than or sell at a price higher than the current market price.

• Stop Orders: Buy at a price higher than or sell at a price lower than the current market price.

• Stop-Limit Orders: A combination of stop and limit orders allows specifying the range of execution price.

• Trade Exit Orders: Orders to exit a trade, including take profit, stop loss, and trailing stop.

We will explain when to use a certain type of order and discuss its pros and cons. Additionally, We will provide examples and graphics for better understanding, along with a take-away summary. By the end, you'll have a firm grasp of fundamental order types and be able to apply them to your trading.

What is an Order?

An order is a set of instructions that you give to a broker to enter or exit a trade on your behalf. Orders specify details including the markets you want to trade, your position size, and the price at which you want to enter or exit your trade.

Order Types

Based on execution time, there are market orders and pending orders:

• Market Orders: Executed immediately at the best available price.

• Pending Orders: Executed at a later time when the price reaches your specified level.

Relative to traders’ price expectation and trading goals, pending orders can be categorized as follows:

• Limit Orders

• Stop Orders

• Stop-Limit Orders

• Trade Exit Orders

We'll explore each order type in detail later.

Market Orders

Market orders are executed immediately at the best available price, making them ideal for quickly entering or exiting trades. While they ensure fast execution, the exact price cannot be guaranteed due to market fluctuations.

For example, a trader places a market order to buy EUR/USD at 1.2000. In a fast-moving market, the order might execute at a slightly higher price, such as 1.2001 or 1.2002.

Here is a summary for you:

Pending Orders

Pending orders are executed when the price reaches your specified level, allowing you to enter or exit the trade at a predetermined level. Note that the execution is not guaranteed, as the market might not reach your specified price. In volatile markets, pending orders may miss opportunities if the price moves quickly.

In what follows, we’ll specify each subtype of pending orders:

• Limit Orders

• Stop Orders

• Stop-Limit Orders

• Trade Exit Orders

1. Limit Orders

Limit orders are used to buy an asset at a specified price or better, called limit price. They are used when you expect a rapid trend reversal. Depending on position, limit orders can be categorized as:

• Buy Limit

• Sell Limit

1.1 Buy Limit

A buy limit order instructs your broker to place you in a long position when the market price drops to a certain level or lower. It is used when you anticipate a temporary price drop followed by a rise. Your buy limit order takes advantage of the temporary drop, allowing you to buy at a favorable lower price.

Let’s explain with an example and the figure below. 

• Current Price Movement: The price has dropped, indicated by the solid line.

• Anticipated Price Movement: You expect the downward movement to turn into an upward trend soon, shown by the dotted line.

• Placing the Order: You place a buy limit order at the black dot, and set the execution price at the yellow dot to buy during the temporary drop.

• Executing the Order: The buy limit order is executed when the price reaches the specified level at the yellow dot or the lower level.

• Potential Outcome: If the price rises after your buy limit order is executed, you will profit.

Note that there is a risk of the market not reversing at the expected level but continuing to fall so that the price you set is not the best price for buying. 

Here is a summary of the order types explained already:

1.2 Sell Limit

A sell limit order instructs your broker to place you in a short position when the market price rises to your specified level or higher. It is used when you anticipate a temporary price rise followed by a drop. 

Your sell limit order takes advantage of the temporary rise, allowing you to sell at the higher price.

Let’s explain with an example and the figure below. 

• Current Price Movement: The price has risen, indicated by the solid line.

• Anticipated Price Movement: You expect the upward movement to turn into a downward trend soon, shown by the dotted line.

• Placing the Order: You place a sell limit order at the black dot, and set the execution price at the yellow dot to sell during the temporary rise.

• Executing the Order: The sell limit order is executed when the price reaches your specified level at the yellow dot or the higher level.

• Potential Outcome: If the price drops after your sell limit order is executed, you will profit.

Note that there is a risk of the market not reversing at the expected level but continuing to rise so that the price you set is not the best price for selling. 

Here is a summary of the order types explained already:

2. Stop Orders

Stop orders are used to buy or sell at a specified price, known as the stop price. This type of order is used when you want to limit a loss or to protect a profit in an unfavorable condition. Note that the stop price is not a guaranteed execution price because the execution price can deviate significantly from the stop price in a fast-moving market.

Based on position, stop orders can be categorized as:

• Buy Stop

• Sell Stop

2.1 Buy Stop

A buy stop order instructs your broker to buy an asset when the market price rises to your stop price, or at the next available best price. This type of order is used when you anticipate the market price will continue to increase after surpassing a certain resistance level—a price point where upward movement typically stalls due to selling pressure. By setting a buy stop order slightly higher than this level, you act on the belief that reaching the stop price signals a bullish trend. This helps protect your short positions against further price increases.

Let’s explain with a forex example and the figure below. 

• Position held: You sold EUR/USD at 1.08270.

• Current Price Movement: The price has recently risen, indicated by the solid line.

• Anticipated Price Movement: You expect the price to keep increasing after breaking a resistance level, shown by the dotted line. 

• Anticipated loss: You foresee that the ongoing rises will result in a significant loss in your EUR/USD short position.

• Placing the Order: To prevent a potential significant loss, you place a buy stop order at the black dot, and set the execution price at 1.09270, indicated by the yellow dot.

• Executing the Order: Your buy stop order is executed when the price reaches 1.09270 at the yellow dot.

• Preventing loss: Your loss is limited to 100 (= 1.09270 - 1.08270) pips, protecting you from further loss if the price continues to rise.

Note that buy stop order can be triggered prematurely because short-term market fluctuations may activate the order. 

Here is a summary of the order types explained already:

2.2 Sell Stop

A sell stop order instructs your broker to sell an asset when the market price drops to your stop price, or at the next available best price. This type of order is used when you anticipate the market price will continue to decrease after breaking through a certain support level—a price point where downward movement typically pauses due to buying pressure. By setting a sell stop order slightly lower than this level, you act on the belief that the stop price signals a bearish trend. This helps you protect your long positions against further price decreases.

Let’s explain with a forex example and the figure below. 

• Position held: You bought EUR/USD at 1.08270.

• Current Price Movement: The price has recently dropped, indicated by the solid line.

• Anticipated Price Movement: You expect the price to keep decreasing after breaking a support level, shown by the dotted line. 

• Anticipated loss: You foresee that the ongoing drops will result in a significant loss in your EUR/USD long position.

• Placing the Order: To prevent the potential significant loss, you place a sell stop order at the black dot, and set the execution price at 1.07270, indicated by the yellow dot.

• Executing the Order: Your sell stop order is executed when the price declines to 1.07270 at the yellow dot.

• Preventing loss: Your loss is limited to 100 (= 1.08270 - 1.07270) pips, protecting you from further loss if the price continues to drop.

Note that stop orders can be triggered prematurely because of the short-term market fluctuations. 

Here is a summary of the order types explained already:

3. Stop-Limit Orders

A stop-limit order instructs your broker to place a limit order when the specified stop price is reached. Once triggered, the order becomes a limit order and will be executed at the limit price or better.

Why Use Stop-Limit Orders?

Stop-limit orders help mitigate trade risks by specifying the highest or lowest price of assets you are willing to accept, protecting against unfavorable price movement. In volatile markets, prices can gap. This means that the price jumps directly from one level to the other level, skipping over your stop price. Those jumps can cause your stop orders to execute at unintended prices. Stop-limit orders prevent this by specifying the exact price range for execution. We’ll explain each types of stop-limit order respectively:

• Buy Stop-Limit

• Sell Stop-Limit

3.1 Buy Stop-Limit

A buy stop-limit order allows you to buy an asset within a certain price range. It helps you control the buying price once you’ve determined an acceptable maximum price. Here is how to set price in a buy stop-limit order:

• Stop price: set above the current market price of the asset.

• Limit price: set above the stop price, representing the highest buying price that you’re willing to pay.

Let’s explain with a forex example.

• Scenario: You want to buy EUR/USD because you expect the price to go up. The current market price is 1.08270.

• Specifying Stop Price: You put a stop price at 1.08290, higher than the current price.

• Specifying Limit Price: You put a limit price at 1.08370, which is the maximum price that you’re willing to pay for the pair.

• Triggering the Order: When the price hits or exceeds your stop price of 1.08290, the buy stop-limit order is triggered and is turned into a limit order.

• Filling the Order: When the price reaches your stop price of 1.08270 and does not exceed your limit price of 1.08290, the order will be filled. That is, when the price falls between 1.08270 and 1.08290, your buy stop-limit order will be filled. Otherwise it will not.

Note that the stop-limit orders are not guaranteed for execution because the price may never fall within the specified range.

Here is a summary of the order types explained already:

3.2 Sell Stop-Limit

A sell stop-limit order allows you to sell an asset within a certain price range. It helps you control the selling price once you’ve determined an acceptable minimum price. Here is how to set price in a sell stop-limit order:

• Stop price: set below the current market price of the asset.

• Limit price: set below the stop price, representing the lowest selling price that you’re willing to accept.

Let’s explain with a forex example.

• Scenario: You want to sell EUR/USD because you expect the price to decrease. The current market price is 1.08270.

• Specifying Stop Price: You put a stop price at 1.08250, lower than the current price.

• Specifying Limit Price: You put a limit price at 1.08170, which is your acceptable minimum price.

• Triggering the Order: When the price declines to your stop price of 1.08250, the sell stop-limit order is triggered and is turned into a limit order.

• Filling the Order: When the price reaches your stop price of 1.08250 and is not lower than your limit price of 1.08170, the order will be filled. That is, when the price falls between 1.08170 and 1.08250, your sell stop-limit order will be filled. Otherwise it will not.

Note that the stop-limit orders are not guaranteed for execution because the price may never fall within the specified range.

Here is a summary of the order types explained already:

4. Trade Exit Orders

All the pending orders mentioned above instruct your broker to open trades, either long or short positions. There are also orders designed to close positions, known as trade exit orders, including:

• Take Profit

• Stop Loss

• Trailing Stop 

4.1 Take Profit

A take-profit order gets you out of winning trades. It instructs your broker to exit a trade when the price hits a predetermined profit target. 

Why exit a winning trade? Because prices won't always stay in your favor. They fluctuate constantly. Take profit orders help you close trades at optimal prices, protecting your profit before a reversal occurs.

• Scenario: You’ve bought EUR/USD at 1.08270 and the price continues to rise.

• Specifying Profit Target: You set a take profit order at 1.09270.

• Filling the Order: When the price reaches 1.09270, your take profit order is executed, and your EUR/USD position is closed automatically, securing a profit of 100 (= 1.09270 - 1.08270) pips.

Note that the take profit orders may cause you to exit too early and to miss out on additional gains, if the asset price continues to rise beyond the take profit level.

Here is a summary of the order types explained already:

4.2 Stop Loss

A stop-loss order gets you out of losing trades. It instructs your broker to help you limit a loss at your specified price when the market moves against your positions. Otherwise, if the market keeps going against you, you may lose all your money.

• Scenario: You’ve bought EUR/USD at 1.08270. But the price continues to drop, going against your long position.

• Limiting Maximum Loss: You set a stop loss order at 1.07270.

• Filling the Order: When the price declines to 1.07370, your take profit order is executed, and the EUR/USD position is closed automatically, limiting the loss to 100 (= 1.08270 - 1.07270) pips.

Losing is a part of trading, and a small loss is better than a big loss! Use stop loss orders to mitigate your loss. Note that the markets may recover quickly after the stop loss order is executed, resulting in a missed opportunity for gains.

Here is a summary of the order types explained already:

4.3 Trailing Stop

A trailing stop order helps lock in a profit or limit a loss dynamically by adjusting the stop price based on a specific percentage or dollar amount that “trails” the market price. For a long position, the trailing stop price is set below the current market price, and for a short position, the trailing stop price is set above the current market price. If the price moves in your favor, the trailing stop adjusts while maintaining the distance. But if the price reverses, the trailing stop remains where it is until the price hits it. Key features of trailing stop include:

• One Direction Only: The trailing stop price only moves in one direction, never backward.

• Adjusts to Peaks/Nadirs: It moves only when new peaks (long) or nadirs (short) are established. 

Let’s explain with a forex long position and the figure below.

1: You buy EUR/USD at the entry price of 1.10000 with a trailing stop of 50 pips. So, the initial stop price is set at 1.09500.

2: The market price goes up to 1.10600, and the trailing stop price automatically moves to 1.10100 (= 1.10600 - 0.00500), maintaining a 50-pip distance.

3: The market price reverses and drops slightly to 1.10400. The trailing stop price remains at the same level – 1.10100.

4: The market price rises slightly to 1.10500. It is not a new peak and so, the trailing stop price remains.

5: The market price keeps going up to a new peak of 1.11300. The trailing stop price automatically moves to 1.10800 (= 1.11300 - 0.00500).

6: The market reverses and drops to the stop trailing price of 1.10800, causing your EUR/USD long position to be closed at 1.10800.

In this example, the trailing stop order helps secure a profit as the EUR/USD moves upward while providing a safety net in case the market reverses. However, selecting the right trailing stop distance is crucial. If set too tight, like 5 pips, it will be triggered by normal daily market movements, giving the trade no room to grow. If set too loose, you risk a larger loss or missing out on more potential profits. Balancing the trailing stop distance is key for effective trading.

Here is a summary of all order types we’ve explained:

Conclusion

Understanding and effectively utilizing these order types is fundamental to your trading. Each order type has its unique advantages and disadvantages, and choosing the right one depends on your trading strategy, market conditions, and risk tolerance. Having mastered market orders and the various types of pending orders, you’re now ready to practice placing different orders. Give a try on MC Prime today!