A trading order refers to the multiple varieties of orders that can be placed on trading exchanges. While these may vary, trading orders generally involve financial assets and the exchanges between them. These can be seen in exchanges such as contracts or stocks. The different types of trading orders aid in allowing traders to emphasize the versatility and specialty of their trade. Stop order in stock trading refers to the buying and selling of stock when it’s at a specific price point.
How is an ‘order’ different from a ‘trade‘?
A trade involves a buyer and seller exchanging assets they deem to carry the same value at a previously agreed price. This exchange happens after the buyer makes a request to purchase from the seller. However, with an order, this exchange does not take place. To summarize, a trade does not happen. Instead, if the buyer has the intention to purchase an asset from the seller, they simply make a request. This request to purchase can be for either the current market price of the asset or a more specified price.
Stop Order
A stop order, also known as a stop-loss order, involves a trade order to purchase or sell a stock when its price passes a certain point. This ensures a higher chance of gaining a predetermined entry or exit price. It limits investors’ loss and locks in the profit. A stop order finally becomes a market order once the price moves to the earlier stated entry or exit point.
For example, if an investor wants to sell a stock once its price falls to $10 from its current price of $15, then the order would be executed when the stock price hits $10. However, the stock could sell for much less than the specified amount of $10 if the stock price falls rapidly. This will depend on the supply and demand of the stock.
With more and more retail investors dabbling in the more volatile growth stock sectors, stop orders can be a great tool to minimise risks if leveraged right.
