Different Order Types

Last week I wrote about the Essex boys totally killing it on Crude oil back in 2020…

Fun story!

If you read it, you may remember that one of the order types they used was the Trading At Settlement (TAS) order.

That order type was crucial to the success of that huge short trade.

Without that, they would have struggled to cover such a big short position so easily.

So, I thought to myself, ‘Right, we should all be up to speed on our order types’.

You know, just in case there’s a $700m opportunity lying around…

Ok, let’s explore together some different order types.

What they are, the advantages and disadvantages.

Now some brokers/platforms won’t offer all of these, and occasionally they are called something slightly different, but it’s close enough.

First things first: Orders tend to have both a price and a time component.

What price should they be executed at AND what time?

Starting with the Basic Order Types (scroll down for more advanced order types if you want to skip.)

Market (MKT)

This is the most popular order type, which basically says “Get me filled right now, I don’t care what price I just want an execution.”

When using this, you are time sensitive not price sensitive.

Slippage can and will occur in fast market conditions, but you will be filled.
(Caution using in large size on illiquid markets you’ll get awful fills.)

Limit (LMT)

Another popular order type.

This time you are price not time-sensitive.

You are basically saying, “I want to get filled at this price or better, and I don’t care how long it takes and understand I might not get filed at all.”

No slippage here, but you might not get filled, or get a partial.

Your call.

Stop (STP)

Essentially this is a synthetic market order that gets triggered at a certain price.

Let’s say you have a sell stop for 100 @ $35 and price is currently trading at $36.

As the price comes lower, if it trades at or the bid touches (each broker’s trigger method is different) $35, your order is turned into a market order.

Ie: Sell 100 @ Market

Giving you all the advantages and disadvantages of a market order.

This is why stops don’t work well during news…

By the time your order has been triggered and is being filled, the price is nowhere near the trigger level.

But, one way to mitigate that is Stop Limit (STPLMT)

Instead of turning your sell order into a market order, it turns it into a limit order.

So using the above example, once the price traded at $35 your order would be turned into a Sell Limit 100 @ $35

And you’d only be filled at $35 or above or not at all…

You can see the pros and cons of working an order that way.

(Sometimes you can specify the trigger price and the limit price separately with this order type.)

Alright, those are the simple and common ones let’s get onto the more advanced stuff.

One way to modify orders is to add a specific time constraint to them.

Let’s look at some…

Fill or Kill (FOK) is a limit order that either gets filled immediately or gets cancelled. If you’re an order book reader you’ll often see these flash on and off the book probing for liquidity.

Trailing Stop automates a simple trailing stop loss strategy. Ie it moves with your position to lock in profits at a set distance from the market price, but won’t move the other way.

Market on Close is a market order sent at the closing bell. It’s a regular market order that becomes live at the close and ensures you get the closing price.

The same goes for Market on Open. (Part of the reason we get so much volatility at the opening bell.)

Good for Day modifier allows you to stipulate that the order is only live for the rest of the day.

Handy if you’re trying to leave a lowball resting limit to get filled on an intraday swing low.

But you don’t want it to carry over to the next day…

However. if you did want it to stay live. You’d use Good till Cancelled. It either gets filled or you cancel it.

Good-for-time orders allow you to specify when your order is live and can be filled.

So, say perhaps you want to leave a limit to buy 100 @ $22 but only want to be filled up to one hour after the opening bell on Nasdaq.

You could specify a good-for-time parameter of 9.30 am -10.30 am.

These are all time-in-force examples and allow you to really get granular with your order types, and align your orders with your trade thesis and setup.

Summary

Most of us default to the same order type for our trades. Usually Market + Stop…

But, knowing the different types of orders available can help you execute your trade idea more effectively.

• Maybe you don’t need to be sat in front of the screen.
• Perhaps you can walk away and let that trade run.

Let the order do the ‘heavy lifting’ for you and express that trade idea more effectively.

Sure, not all platforms offer every order type, but, if there’s a specific order type you think would benefit your trading then it might be worth switching…