Studying for Series 3 Exam. Question about Order Types

[CLTrader1]

This is my first post on T2W. I'm having a little difficulty in the wording/explanation of the different types of orders. Thanks in advance for helping!

1.) What's the difference between the different types of orders above market price if I'm in a long position: buy stop, sell mit, sell limit, buy stop limit? Do all of them close my long position? Of the ones that close my position is there one that's more advantageous than the others?

2.) If I'm bullish and I'd like to first place my stop loss order where I suspect I would be wrong which order do I place? Then, which would be the best order to place where I would like to be filled to go long?

3.) The workbook talks about "better". The example is that CL is trading at 84.78bbl and a customer wishes to enter a limit order to sell 2 contracts at 84.75 (already better than the limit price) --- why would that be considered a "better" price if the customer is seeking to derive profits from a short sale?

 

[highbury fx]

This is my first post on T2W. I'm having a little difficulty in the wording/explanation of the different types of orders. Thanks in advance for helping!

1.) What's the difference between the different types of orders above market price if I'm in a long position: buy stop, sell mit, sell limit, buy stop limit? Do all of them close my long position? Of the ones that close my position is there one that's more advantageous than the others?

2.) If I'm bullish and I'd like to first place my stop loss order where I suspect I would be wrong which order do I place? Then, which would be the best order to place where I would like to be filled to go long?

3.) The workbook talks about "better". The example is that CL is trading at 84.78bbl and a customer wishes to enter a limit order to sell 2 contracts at 84.75 (already better than the limit price) --- why would that be considered a "better" price if the customer is seeking to derive profits from a short sale?

Hi Cl

There are lots of different order types but they all fall either in to 1 of 2 categories.

The first is a stop order. This is an instruction to trade at the a level less advantageous than the current market price.

The second is a limit order. This is an instruction to trade at a level more advantageous than the current market price.


bearing in mind that there are only 2 categories of orders lets go through your questions:

1. If you are in a long position : A buy stop would be to go longer at a higher price than the current market level. A sell limit is to close or part close your position at a higher price than the current market level (usually used to take profit in this case). The first order isn't to close, on the contrary it is used to increase your exposure, sometimes this will also be referred to as scaling in. The second order is to take profit. That is more advantageous to a sell stop which is an order to close your position at a lower price than the current market level (usually used to close a losing trade). Finally you have a buy limit which is an order to go longer at a price lower than the current market. (nb - a 'buy stop limit' order doesn't exist)

2. if you're already long (you said you were bullish) your first stop order should be a sell stop just below the support line, this will close your trade for a loss. If you're planning to go long you should place a buy stop just above the resistance line.

3. its not a better price and this order isn't a limit order. if the market is currently 84.78 and the order is to sell at 84.75 then this is a sell stop order. A limit order would be an order to sell at a price higher than 84.78. If you were short at 84.78 and you wished to buy them back at 84.75 this would be a buy limit order.

Hope that helps. good luck with your exam.

 

[CLTrader1]

Hi highbury. This is great information and is exactly what I was looking for. Thank you for taking the time to reply. I appreciate the insight!