Are you using trading orders? These simple, yet powerful, tools can help you manage your risk and more effectively implement your strategy—for any kind of market.
Putting trading orders to use
When you are making a trade, you will be prompted to select an order type after selecting a symbol, action (buy, sell, etc.), and quantity.
Market orders are a commonly used order when you want to immediately buy or sell a security. A limit order might be used when you want to buy or sell at a specific price.
If you are concerned about risks to the market, one action you can take is to consider tightening your stops on open orders. This strategy involves adjusting stop orders so that they are closer to the current market price (in order to potentially reduce the impact of a large, adverse price swing). If risks dissipate, you can adjust and loosen up your stops.
Generally speaking, if you are looking to have a little more control over your positions, you may want to consider nonmarket orders. Limit orders are a primary alternative and can be particularly useful when market volatility is on the rise. However, setting a limit order can take some finesse.
A buy limit order is usually set at or below the current market price, and a sell limit order is usually set at or above the current market price. The price at which you might set a limit order above or below the current price can depend on a number of factors, including the level of volatility in the market and the specific characteristics of the security you are trading.
More than limits
There are a number of other order types that can help you manage your positions. One thing to be aware of when it comes to limit orders, for example, is that it may be filled in whole, in part, or not at all, depending on the number of shares available for sale or purchase at the time. It might make sense to place additional conditional orders. Choices include:
- Fill or Kill (FOK). A FOK order mandates that if the order is not executed immediately, it is canceled.
- Good-'til-Canceled (GTC). A GTC order keeps the order open indefinitely until it is executed or canceled.
- Immediate or Cancel (IOC). An IOC order is a limit order set at a limit price you specify. All or only a portion of the order can be executed. Any portion of the order not immediately completed is canceled.
- All or None (AON). An AON order is a condition that mandates either the entire order is filled or no part of it.
Advanced conditional orders
In addition to basic order types, there are a number of more advanced, conditional orders that you may want to consider implementing, if appropriate for your strategy. They include One-Triggers-the-Other (OTO), One-Cancels-the-Other (OCO), and One-Triggers-a-One-Cancels-the-Other (OTOCO).
If your trading strategy is working for you, then carry on. However, if you aren’t making use of trading orders, you may want to consider doing so.