Order Types

There are a few situations where the market order is the best choice. One is if you simply want the quickest execution possible. Another is whenever you’re trading an asset with high liquidity and an extremely tight spread. For example, this comes into play when you place orders for forex pairs with spreads of just a few pips, or stocks with a bid-ask spread of a penny or less. Another situation where the market order is acceptable is when you’re trading small lot sizes of under $1,000. Any time you want to get in or out of a position quickly, a market order is best. The same is true when the cost of entry and exit is extremely low.

Determining where to place a stop-loss order is all about deciding how much risk you’re willing to take. For example, if you buy a $100 stock and place your stop-loss at $90, you’re indicating a 10% loss is acceptable. This type of percentage loss is a standard method for determining stop-loss levels. Another approach is to use nearby common moving average levels, or other support or resistance levels to decide where to place a stop-loss. In any case, your risk of loss should be no more than half your potential profit. So in the example above, with a possible 10% loss, the profit target should increase by $120 (20%) at a minimum.

This risk management strategy links a stop-loss order with a limit order to automate a trade. The stop-loss order is triggered if the loss becomes greater than the trader is willing to accept, while the limit order is triggered if the order reaches the profit target. This strategy allows a seasoned trader to enter a position, define the exit conditions, and put the trade out of their mind, knowing it will execute as they want, without the risk of emotions entering the picture and messing with the trade.