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There are various order types to choose from if you want to invest. If you are not new to trading in MetaTrader 5 (MT5), you might have knowledge about it already. But for newbies, you may see various options but don’t know how to use them. For you to properly use the order types, you have to know what it is for and how it works. One of the most commonly used order types is stop order. It executes the order when a specific price is reached.
Understanding a Stop Order
Stop Order is an order that is automatically placed at a certain price when you want to buy or sell a stock. After meeting the price that you’ve set, the order will change into a market order and the trade is executed right away at the next best price.
For traders, you can utilize stop orders upon buying and selling an instrument like stock. At the start of the trade, you have to place a stop order so your profits are protected from huge losses. Upon setting a stop order, you also have to set a stop price. When this stop price is reached, the stop order will get triggered at the best price possible.
However, a stop order won’t guarantee to always go through. In case the stop price is not reached, there might be differences with the price in the actual market. The financial market is naturally volatile and fast-paced. In some cases, you end up purchasing a stock at a much higher price, or the asset is sold at a lower price.
Market Orders, Limit Orders, Stop Orders
Knowing the three common types of orders in the market will guarantee that your profit is protected. Although you may still get losses, it is much lower and won’t be a threat to your account.
Stop Orders – it is also known as a stop-loss order. It has a stop price which either triggers a buy or sells order. When this stop price is achieved, the order that you initially placed will be activated and turned into a market order. There is also a buy stop order or the price greater than the market price and sell stop order or the price below the market price. These risk management tools are mostly used to mitigate the risks and secure the profits of the trader.
Limit Orders – it is just like the stop order which is also triggered when a specific price is reached. The only difference between limit orders and stop orders is that the limit order must be placed at the limit price or a much better price. For instance, you want to buy a stock worth $30. You can set the limit price at $30 and the order will be placed once this limit is reached.
Market Orders – it is another order type used in buying or selling instruments in the market at the current market price. With limit orders or stop orders, they need to meet a specific price before the order gets executed in MetaTrader 5 (MT5). But with the market order, the order still gets through without limit. These order types guarantee an order without any specific price.
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