Stops and limits are the two types of opening orders.
Stop Orders
A Stop Order is an order to automatically open a trade at a worse price than the current 'Our Price' of a market, providing the price of the market reaches the specified order level.
Stop Order Example
Stop Orders are a vital tool to help you protect your trade against losses when the market moves against you.
Going Long:
You expect the UK 100 to rally over the coming days and therefore want to open a buy position. However you don’t want to enter at the current price, you want to see the market going up before entering the position.
A Stop Buy order is an order left above the current market price. Let's say the UK 100 is trading at 5485. You leave a stop buy order £3 at 5505.
Result: The UK 100 breaks through 5505 you like to buy £3. Be aware that if the market gaps you will be filled at the first available price. For example if following some important data the UK 100 gaps up from 5485 to 5510 your stop buy order will be filled at 5510 (the first available price).
Alternative scenario: If the UK 100 does not hit or go through 5505 you will not have an open position.
Going Short:
You expect the UK 100 to fall over the coming days and therefore want to open a sell position. However you don’t want to enter at the current price, you want to see the market falling before entering the position.
A Stop Sell order is an order left below the current market price. The UK 100 is trading at 5485. You leave a stop sell order £3 at 5450.
Result: The UK 100 breaks through 5450 you sell £3. Be aware that if the market gaps you will be filled at the first available price. For example if following some important data the UK 100 gaps down from 5485 to 5440 your stop sell order will be filled at 5440 (the first available price).
Alternative scenario: If the UK 100 does not hit or go through 5450 you will not have an open position.
Limit Order
A Limit Order is an order to automatically open a trade at a better price than the current 'Our Price' of a market, providing the price of the market reaches the specified order level.
Limit Order Example
Going Long:
You expect the UK 100 to rally over the coming days and therefore want a buy position. However you don’t want to enter at the current price, you want the market to drop before entering the position. A Limit Buy order is an order left below the current market price. The UK 100 is trading at 5485. You leave a limit buy order £3 at 5450.
Alternative scenario: If the UK 100 does not hit or go to 5450 you will not have an open position.
Going Short:
You expect the UK 100 to fall over the coming days and therefore want to open a sell position. However you don’t want to enter at the current price, you want the market to rise before entering the position.
A Limit Sell order is an order left above the current market price. The UK 100 is trading at 5485. You leave a limit sell order £3 at 5500.
Result: The UK 100 breaks through 5500 you sell £3. Be aware that if the market gaps you will be filled at the first available price.
Alternative scenario: If the UK 100 does not hit or go through 5500 you will not have an open position.
One Cancels the Other Order
An order allowing you to take multiple views on the same market by placing two simultaneous opening orders. When 'Our Prices' trigger an order, the order will be executed whilst the remaining order will automatically be deleted.
Within our platform we also allow clients to place “OCO” or “One Cancels Other” orders. For the many technical analysts out there and clients who may not have 24 hour access to the account, the OCO order makes it possible for you to set your stop loss and your target price, limit order, to an open order or a pending order.
What this means is that you are able to place a stop and a limit on an order and one is executed, the other is cancelled. A quick example:
One Cancels the Other Order Example
Going Long:
Let’s say you expect the FTSE to rally today but are not at your computer all day. In the morning you Buy the FTSE at 5500 £10. You place an OCO order with a stop at 5450 and a limit at 5600. Throughout the day there is movement in both directions and eventually the market hits your limit order at 5600. At the same time your stop is cancelled off automatically.
Result: You bought at 5500 and placed a stop at 5450 and a limit at 5600. The market hits your limit showing a 100 point gain, at your stake size of £10 per point, nets you a tax-free profit* of £1000 (5600 – 5500 x £10).
Alternative scenario: If however, the price of the UK 100 had fallen to your stop at 5450, you would have lost £500 (5500 - 5450 x £10).
Furthermore, if you are placing an opening order, you can also use the OCO function to your advantage here. If you want to buy if the market trends up or sell if the market trends down, then you can set up and OCO order to get you into either position, whichever is hit first, cancelling the other order.
For example, non-farms payroll is due for release at 1:30 and you want to trade the direction resulting from the number release. The market is currently at 5500 and so you place an opening buy order at 5550. To this you attach an OCO order to sell at 5450. Therefore, whichever order is hit first will execute and the other order will be cancelled off.
Result: You place an opening order to buy at 5550 and to sell at 5450. The market rallies after the numbers and opens you at 5550 into a long position.
Alternative scenario: The market falls after the numbers and opens you at 5450 into a short position.