Types of orders: How are they executed?

When operating in the financial markets, we must consider the type of order we are using and how they are executed in the market. As a rule, there are two types of orders: market orders and pending orders.

What is the difference between market orders and pending orders?

Market Orders are immediate purchase (BUY) or sale (SELL) at the current/available market price.

Pending Orders are only executed once the precondition has been met, since for this type of order it is necessary to set a certain opening price.

Among this type of orders, we can find the following orders:

• Buy Limit: Pending buy order whose execution price is lower than the current market price,

• Sell Limit: Pending sell order whose execution price is higher than the current market price,

• Buy Stop: Pending buy order whose execution price is higher than the current market price,

• Sell Stop: Pending sell order whose execution price is lower than the current market price.

  
  

At what price are the buy and sell orders executed?

As you well know, the trading price of a certain product is dual: a BID price and an ASK price.

You should know that sell orders are executed at the BID price, while Buy orders are executed at the ASK price. 

This situation can sometimes cause us to fall into the error of thinking that our pending buy orders have not been executed correctly, either because our Buy Stop has been executed without the chart reaching the established level or that our Buy Limit order has not been executed even though the chart has reached the desired price level.

At this point, we must consider that the price used to make the charts is the BID price, while the price to execute the Buy orders is the ASK price.

Once a trade is opened, our reference quote price to close said order becomes the opposite price

• Buy orders are opened at the ASK price and closed at the BID price

• Sell orders are opened at the BID price and closed at the ASK price
  
  

How are Stop Loss and Take Profits executed?

A Stop Loss and a Take Profit are just pending orders in the opposite direction of the open order, if we open a buy order, our SL and our TP are nothing more than a pending order to sell it at a determined price.

If we have a Buy order open, our Stop Loss will behave like a pending Sell Stop order, while our Take Profit will behave like a pending Sell Limit order, executing both at the BID price.

On the other hand, if we have a Sell order open, our Stop Loss will behave like as a pending Buy Stop order, while our Take Profit will behave like a pending Buy Limit order, executing both at the ASK price.

Please, note, that when Stop loss is activated, it can be executed at the established price, at a better price or at a worse price. In the case of Take Profit after being activated, these can be executed at the same price or better than the established price.

Why was my pending/Stop loss/Take profit order executed at a different price than the one set?

Although generally and with normal market conditions orders are executed at the pre-established price, it is possible that, on some occasions, the pre-established activation price and the final execution price of an order may be different. This situation is quite common in the financial markets since orders can be affected by high volatility in the markets or by low liquidity, so our orders can experience slippage or even a Gap.

Slippage is the difference in price that can occur between the time a trade order passes and its actual execution. It can occur at any moment, but it is most common during periods of higher market volatility or during important Forex news announcements. According to market execution, slippage can be both positive and negative.

On the other hand, a Gap is the absence of a quote for a certain period, which is clearly visible on the chart, perhaps best on candlestick charts. A gap appears on the chart when the first quotation of a new candle is very different from the last quotation of the previous candle. It can also appear at the release of news, or at the opening of the market.

These situations are beyond the control of the broker and clients accept this situation as general market risk, in accordance with the terms and conditions when registering an account with us.