Intermediate Guide To MetaTrader 4 - Order Types

Traders have the option of placing different order types using the MT4 platform.

Market Order
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.

Pending Orders
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.
  

SEE: The Basics of Trading A Stock

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.

Stop Loss
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.

Take Profit
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.