Traders have the option of placing different order types using the MT4 platform.
A market order is the most basic type of trade order and is used to buy or sell a security at the current price. Securities are bought at the ASK price and sold at the BID price. The advantage to using market orders is that a trader is guaranteed to get the trade filled. If the trader absolutely needs to get into or out of a trade, a market order is the most reliable method of accomplishing this. The downside of using a market order is that slippage con occur (getting filled at a less favorable price). Market orders should only be used to enter trades when there is good liquidity in the market; otherwise, significant slippage could occur.
A pending order allows traders to buy and sell securities at a pre-defined price in the future. This type of order is used to execute a trade if price reaches the pre-defined level; the order will not be filled if price does not reach this level. There are four types of pending orders available in MT4 (see Figure 20):
- Buy Limit - an order to purchase a security at or below a specified price. Limit orders must be placed on the correct side of the market to ensure they will accomplish the task of improving price. For a buy limit order, this means placing the order at or below the current market bid.
- Sell Limit - an order to sell a security at or above a specified price. To ensure improved price, the order must be placed at or above the current market ask.
- Buy Stop - an order to buy a security at a price above the current market bid. A stop order to buy becomes active only after a specified price level has been reached (known as the stop level). Stop orders work in the opposite direction of a limit order, with buy stop orders placed above the market and sell stop orders placed below the market. Once a stop level has been reached, the order will be immediately converted into a market or limit order.
- Sell Stop - an order to sell a security at a price below the current market ask. A stop order to sell becomes active only after a specified price level has been reached.
Figure 20 - Buy stop, sell stop, buy limit and sell limit orders must be placed on the correct side of the market to ensure they will accomplish the goal of improving price.
A stop-loss order is used to minimize losses if price moves in an unprofitable direction. If price reaches this level, the position will be closed automatically. A stop-loss order is always connected to an open position or a pending order. Traders can use a trailing stop to automate a stop-loss order to follow price.
A take profit order (sometimes called a profit target) is intended to close out the trade at a profit once it has reached a certain level. Execution of a Take Profit order closes the position. This type of order is always connected to an open position of a pending order.
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