Education

🟢STOP AND LIMIT ORDERS EXPLAINED🟢

✴️Types of orders in trading
There are two main types of order: entry orders and closing orders. An entry order is an instruction to open a trade when the underlying market hits a specific level, while a closing order is an instruction to close a trade when the market hits a specific level.

✴️Stops vs limits
A stop order is an instruction to trade when the price of a market hits a specific level that is less favourable than the current price.
On the other hand, a limit order is an instruction to trade if the market price reaches a specified level more favourable than the current price.

✴️Stop orders explained
You can use stop orders to close positions and to open them, by using either a stop-loss order or a stop-entry order.

✴️Stop-loss orders
A stop-loss order is the common term for a stop closing order – an instruction to close your position when the market value becomes less favourable than the current price.

✴️Stop-entry orders
A stop-entry order enables you to open a position when the market reaches a value that is less favourable than the current price.
If you were opening a long position, you’d place your stop-entry order above the current market price. And if you were opening a short position, you’d place your stop-entry order below the current price.
Although it may seem strange to open a trade at a worse price, stop-entry orders can enable you to enter a trade once a trend has been confirmed. This helps you take advantage of market momentum.

✴️Limit orders explained
Like stop orders, limit orders can be used to open and close trades.

✴️Limit-entry orders
A limit-entry order enables you to enter a trade when the market hits a more favourable price than the current price. For long positions, this would be below the current price level and for short positions this would be above.

✴️Limit-close orders
A limit-close order enables you to close a trade at a more favourable price – which would be at a higher level for a long position and a lower level for a short position.
The major drawback of a limit order is that there is the possibility it will not be filled if the market never reaches your order level – in this case the order would expire. If you had placed a limit-entry order, it is possible that your trade would never be executed. And if you had placed a limit-close order, your trade would not be closed automatically.

😊Thank you for reading, guys😊

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