TRADING & INVESTING TERMS
The process of purchasing a certain amount of security is called a buy order. It can be bought at the current price or waiting for the value to come at a certain price (reduced price) before buying. Investors can also ask a broker to buy orders for them. There are 2 sub-types (a) Limit Order and (b) Market Order. Limit Order refers to a specified price to buy the instrument. Market Order refers to buying the instrument at the current market price (whatever is best available in the exchange).
The process of selling securities, bonds, or shares is called a sell order. It can be sold at the current price or wait until the price reaches the trader’s target (which would be more value from the current value). The same principles of Market Order and Limit Order applies to this also.
An order which has the Stop Loss specified from the beginning is a Stop Loss Order. This protects the trade position from unlimited losses.
Traders can enhance the efficacy of a stop loss by pairing it with a trailing stop, which is a trade order where the stop loss price isn’t fixed at a single, absolute dollar amount, but is rather set at a certain percentage or dollar amount below the market price.
In bracket order, the trader puts additional buy order along with exit order and stop-loss order. Target and stop-loss orders will be automatically placed after the execution of the main order. These orders can only be positioned for the same day trade. Bracket orders permit traders to get the profits when trends move upwards and help to prevent loss with a downward trend. Using this, it is not essential to monitor the positions and trends continuously.
The key components of a trading order are (a) entry price (b) target price (c) stop loss price (d) number of the equity being traded (e) position size and (f) type of order (market order vs limit order). There are some order types, which may require more parameters than these.
This trade order is designed to minimize the loss. It instructs to close the position and book the loss, if the direction of the instrument is going against the expected profit direction. For a long trade, it is normally below the entry price and for short trade position, it is normally above the entry price.
Predetermined trading strategy in which entry order is placed when the price reaches the set value. Entry order will not be executed until the price reaches the set value.
Contrary to stop loss, a profit target is set by the trader. Professional traders set the target before entering the trade. When trends go in their favor and reach the set target, the trade is automatically closed to book profit. It is calculated using the risk-reward ratio.