Order types, side by side

What the ticket is asking 

The type field decides what the other fields do. Direction says which way, size says how much, and the type says under what conditions the instruction is allowed to become a deal. Every order type in this module is a different answer to that one question. This lesson introduces nothing new. It sets the whole set beside each other so the answer can be found without reading the module again.

Two variables, and nothing else 

Two properties separate every instruction in this module from every other one. The first is price. An order either names a price it will not deal beyond, or names none and accepts whatever the venue has when the message arrives. The second is timing. An order either acts on the instant it is sent, or rests and acts only if a stated condition occurs. Every type in the list is a combination of those two answers, plus, in one case, a link between two orders deciding which of them survives. An entry that looks new usually turns out to be one of these with a condition attached, or the same instruction under a name a different venue prefers.

The comparison 

Each entry states the same four things in the same order: what the instruction does, what it fixes, what it leaves open, and whether it is immediate or conditional. No entry says when an instruction is appropriate, because that is not a property of the instruction.

• Market order. Deals at once, at the best price the venue has when the message arrives. Fixes that a deal happens, and when. Leaves the price open. Immediate: it never rests and has no level to reach.
• Limit order. Deals at a stated price or better, and at no other price. Fixes a boundary on the price, a ceiling for a purchase and a floor for a sale. Leaves open whether a deal happens at all. Conditional: it rests until the market reaches the level or it is withdrawn.
• Stop order. Rests until a trigger price trades, then submits a market order. Fixes the moment the instruction is sent. Leaves the fill price open, so the price received can differ from the trigger in either direction. Conditional: it rests until the level is reached.
• Stop limit order. Rests until a trigger price trades, then submits a limit order rather than a market order. Fixes both the moment of activation and a boundary on the price. Leaves open whether the activated order deals, so the level can be reached and no deal follow. Conditional in two places.
• Take profit order. A limit order attached to an open position, resting on the side that position gains from. Fixes a boundary on the closing price. Leaves open whether the level is reached. Conditional, and mechanically a limit order under a name recording what it is attached to.
• One cancels the other. Two resting orders linked so the execution of one withdraws the other. Fixes nothing about price or timing the two orders did not fix already. Leaves open which of them deals, and settles what becomes of the one that does not. Conditional, and a relationship between instructions rather than an instruction of its own.

Immediate and conditional 

One line through the list matters more than the others. A market order is a transaction. Everything else is an instruction about a transaction that has not happened yet and may never happen. A conditional order sits in a pending list rather than a position list, carries no exposure while it waits, and can be withdrawn without a transaction, while a position cannot be undone once it exists. It also carries a risk a market order does not, the risk of never existing: a level that is not reached produces nothing, and no deal is as real an outcome as a deal.

The words on the screen 

Vocabulary drifts between venues, and reading a ticket accurately matters more than memorising a list. An order that has not yet dealt is called pending on some platforms, working on others and resting in most trading conversation, and the three words name one state. The side and the type are usually joined into a single label, buy limit or sell stop, and which word comes first varies. A stop loss and an entry stop are the same mechanism under different names, separated only by whether a position is already open when the level is reached.

A statement uses a narrower vocabulary than a ticket, and its words are not interchangeable. Filled and executed both mean the order dealt in full. Partially filled means part of the size dealt while the remainder either rests or was withdrawn. Cancelled means it was withdrawn before dealing, expired means it reached the end of a stated life without dealing, and rejected means it was never accepted at all, so it never rested. Where a platform's label disagrees with the description here, that platform's documentation and the contract specifications are the authority.

One path, every instruction 

The clearest way to keep the list apart is to run one market path past all of it at once. Every instruction below is written at the same moment, on the same instrument, at the same price. The market then falls, then rises past where it began, and which instructions deal, which activate and which are never touched follows entirely from the definitions above.

Where practitioners disagree 

Two arguments run through the list rather than through any single entry. The first concerns the stop limit. One tradition treats the price boundary as the whole point, on the ground that an instruction becoming a market order in a disorderly market transacts at a price nobody sanctioned. Another answers that a boundary preventing a deal in exactly the conditions the level was written for is a second failure rather than a safeguard, because the position stays open and the level has already gone past. Both describe one trade off from opposite ends.

The second concerns naming. One tradition argues that take profit and stop loss do not belong in a list of types at all, since a take profit is a limit order and a protective stop is a stop order, and separate names conceal a mechanism a reader would otherwise carry across. Another answers that the names record what an order is attached to, which has a real consequence: an order attached to a position is cancelled when that position closes by any other route, and an order standing alone is not. Both sides describe the same behaviour on the platform.