Understanding the Different Types of Orders Used in Day Trading

Day trading is a popular form of investing that involves buying and selling stocks and ETFs within the same day. To be successful, it is essential to comprehend the various types of orders used to purchase or sell stocks and ETFs. Market orders, limit orders, and stop orders are the most common types of orders used in day trading. A market order is the most straightforward type of order.

It is an order to buy or sell shares for immediate execution at the best domestic offering (NBBO). Market orders have the highest priority over limit orders to be executed immediately at the “best current available price”. Limit orders are favored by intraday traders. This type of order requires the trader to include a specific limit price to buy or sell shares.

This allows traders to control the prices of their stock orders and provides liquidity when buying on demand or minimum prices when selling on offer. Limit orders also enable traders to scale positions to get a better average price.

Limit orders require traders to take the additional step of factoring price parameters on each trade.

This helps reduce impulsive trading, as the trader must think carefully about their game plan. Providing liquidity can also allow traders to receive refunds for transfer and exchange fees, depending on their broker's policies. A stop-loss order, also known as a stop order, is a trading order designed to limit (and therefore protect) an investor's loss on a position.

A stop order sells a stock when it reaches a certain price. A stock limit order is a conditional trade order that combines the features of a stop order and a limit order. A stop-limit order requires placing two prices: the limit price and the limit price. Once the stock reaches the limit price, the order becomes a limit order.

Stop-limit orders guarantee a price limit, unlike stop orders which guarantee execution but not necessarily at the price of the stop order. A final stop order is similar to a stop order but is based on the percentage change in the market price and not on a specific target price. Intraday traders who follow a breakout strategy will be best suited for stop (pending) orders. Just place a buy stop order above the break point or a sell stop order below the break point and you're good to go. Market on Close (MOC) orders are executed at the close of the market or right after with the intention of reaching the last market price of the day. Spot orders are the simplest type of market order, you open a position at the current market price, at the price that your broker can cover for you. If you design your stop-limit orders as daily orders, they will remain active until the end of the trading day.

Fortunately, most modern brokers and trading platforms allow you to choose from a variety of order types that best suit your trading strategy. Choosing the right order type can significantly improve your trading performance.