What Is a Trading Order?

A trading order is an instruction to buy, sell, open, close or modify a position in a financial instrument.

Instead of manually negotiating with another market participant, modern traders submit orders electronically through a trading platform.

The trading system then processes the instruction according to the order type and available market conditions.

Why are there different order types?

Traders do not always want to enter the market immediately.

You might want to:

• Buy at the current available price

• Buy only if the price falls to a certain level

• Buy only if the price rises above a particular level

• Automatically close a losing position

• Automatically close a profitable position

Different order types allow traders to specify these conditions.

Opening and closing orders

An order can generally be used to:

Open a position

The trader creates new market exposure.

For example:

You buy EUR/USD because you expect it to rise.

Close a position

The trader removes an existing market exposure.

For example:

You previously bought EUR/USD and later sell to close the position.

Buy and sell orders

A buy order generally creates or increases exposure intended to benefit from a rising market.

A sell order can be used either to close an existing long position or, where the product allows it, open a short position intended to benefit from falling prices.

Pending orders

Some orders are submitted now but are designed to activate only when the market reaches a specified price.

These are commonly known as pending orders.

Limit and stop orders are common examples.

Lesson summary

• A trading order is an instruction sent through a trading platform.

• Orders can open, close or modify positions.

• Buy and sell instructions serve different purposes.

• Some orders execute immediately.

• Pending orders wait for specified market conditions.