Five order types, and which one buys you a cheaper spread

Most retail traders use exactly one order type: click buy, or click sell. The other four sit
untouched on the platform — and they are the tools that give you control over the entry, the exit
and the cost.

1. Market order

Buy or sell now at the best price available. Upside: it fills. Downside: no control over
the price — you take whatever the market is showing, including a
spread that has just widened fivefold.

Use it when: you need in or out immediately, and
liquidity is good.

2. Limit order

A pending order at a price better than the current one:

• Buy Limit — below current price; waits for price to drop, then buys.
• Sell Limit — above current price; waits for price to rise, then sells.

This is the most wasted order type on the platform. It gives you exact control over the
entry, sidesteps a sudden spread blowout, and removes the urge to chase price.

3. Stop order

The opposite of a limit: placed at a price worse than the current one, to enter
once price confirms a direction.

• Buy Stop — above current price; buys on a break higher.
• Sell Stop — below current price; sells on a break lower.

This is the breakout trader’s tool. One thing to know: once triggered, a stop order becomes a
market order — so it can be slipped,
precisely when the market is moving fastest.

4. Stop loss and take profit

Two orders attached to an open position, closing it automatically at a preset level.

The part to understand: a stop loss does not guarantee that exit price. It is a
market order triggered when price touches the level, so if the market gaps, it fills at the first
price available — possibly much further away.

Take profit is the opposite: being a limit order, it fills at your price or better.

5. Trailing stop

A stop loss that follows price while the trade is in profit, holding a fixed distance. Price moves
your way and the stop creeps after it; price turns and the stop stands still and triggers.

What to watch: on MetaTrader a trailing stop runs on your own computer, not on
the broker’s server. Close the terminal and it stops working. A lot of money has been lost to that
one detail.

6. Picking the order type for the situation

• Quiet market, want in now → market order.
• A price area in mind, no hurry → limit order. Also the cheapest on cost.
• Waiting on a break of support or resistance
  → stop order.
• Around news → limit order,
  or nothing at all. A market order here is the most expensive spread you will ever pay.
• A longer trade you will not watch → always with a stop loss and take profit set
  on the server.

7. The order type moves the cost directly

This part rarely gets said. A market order makes you pay the spread at that instant,
wide or not. A limit order lets you choose when you fill, so the average entry cost is lower.

For someone trading several times a week, half a pip per trade across a few dozen trades a month
is a real number. Add the rebate that comes back on volume, and the habit of using pending orders
instead of market orders can improve the net result without touching the strategy at all.

Sources

• Compare Forex Brokers — Order types and execution
• TIOmarkets — Execution models and order handling
• EarnForex — Stop orders, stop loss and account protection

This article is for information only and is not investment advice. The order types available differ by platform and by broker. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.