What are the Different Types of Advanced Trade Order?

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Advanced Trade Order

What are the Different Types of Advanced Trade Order? Trade orders are different types of orders that you can place on trading exchanges for trading in stocks or futures contracts. These orders match buyers and sellers who have matching order criteria. When the buying and selling prices match, the trade order is executed. 

Many brokerage platforms allow you to choose from various types of advanced trade orders. These are in addition to the basic buy and sell trade order types offered by them.

What is an Advanced Trade Order?

Advanced trade orders are also known as conditional orders. These orders get executed only if the conditions you specify are met. With the help of advanced trade orders, you can manage your risks better. These orders allow you to get into positions when market conditions are favorable or unfavorable.

What are the Different Types?

Brokers offer different types of advanced trade order. Do you know the various types and which suits you best? You can learn about the trade order types available on the POEMS platform.  Below, we discuss a few:

  1.     One-cancels-the-other (OCO) order:

The name offers a clue to this type of order. OCO is a conditional order where you place two orders. One order gets cancelled when the other gets executed. An example will help you  understand the process better. 

Example: You buy stocks from ABC Company at US$50 apiece. Your target profit is 20%. You do not want your loss to go beyond 10%. You can place an OCO order where your sell limit is US$60 and your “stop-loss” is at US$45.

If the stock price touches US$60 and your sell-limit order gets executed, your stop-loss order is cancelled. If the price goes down to US$45, your stop-loss order gets executed and your sell-limit order is cancelled.

  1.     One-triggers-the-other (OTO) order:

You create two orders in this type of trade. One is a primary order; the other is a secondary order. If your primary order gets executed, your secondary order is automatically triggered. Your primary order is live in the market but your secondary order is not. Your secondary order becomes live only after your primary order is executed. Using an OTO order saves you time as you do not have to place two separate orders. These orders work well when you find it hard to accept losses. OTO orders help you resolve this problem. Let us use an example to illustrate.

  1.     Contingent order:
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A contingent order is an advanced order type that you can use when you want to place a trade order only after another event has occurred. Your contingent order will be executed only when the event occurs. Orders can be contingent on each other, like when two or more orders have to be executed simultaneously.

Contingent orders offer an advantage: they allow you to implement a strategy once the event occurs. 

  1.     Multi-contingent order:

A multi-contingent order is similar to a contingent order. These orders combine two conditions that must be met for your orders to be executed. The conditions can be as follows:

  • “And at the same time” is chosen when both conditions should be fulfilled simultaneously.
  • “Or” is chosen when either of your two specified conditions should be fulfilled.
  • “Then” is chosen for situations where specific conditions have to be fulfilled in sequential order.
  1.     Trailing stop order: 

A trailing stop order is a modified version of a stop order. You can set a fixed percentage or value different from the current market price of the security. A trailing stop order adjusts the stop price below or above the stock’s market price as per your specification. For a long position, you will place a trailing stop loss below the market price. For a short position, you will place the trailing stop above the market price. 

A trailing stop order protects your gains as it allows your trade to remain open. You continue to earn profit as long as the price moves in your favour. If the price changes direction by the percentage or amount specified by you, your order closes. This order type helps you lock in profits or limit your losses.

Takeaway:

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Choose an advanced trade order type according to your investment strategy and risk appetite. Check the different types offered by your brokerage for your account. Before you place any order, understand the nuances of the different advanced order types and choose with the help of an expert, if necessary.

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