Your guide to entry orders
Keeping track of the price movements of securities is crucial to effective trading. Whether you're involved in forex, commodities, shares or indices, the ability to know whether it's time to buy or sell is the difference between profit and loss. But watching price charts poised to buy isn't the most effective use of your time. You need entry orders.
Comprising market, stop-loss, and stop-limit orders, this form of direction helps you make trades quicker and easier, with less risk than doing so manually. In this guide, learn all about what an entry order is, the various types, how they work, their benefits, drawbacks and more.
What is an entry order?
An entry order is an automated direction you can use within platforms like Trading Station to open a position at a certain price level to capitalise on a situation. The position opened can be to buy or sell a security at said price.
When the price level set within the order is reached, the order is automatically executed. If it doesn't reach the level, it isn't placed and remains dormant until the price level is reached.
Due to being based on instructions, entry orders are often used to simplify the act of trading – you don't need to look at the screen and manually make the order, you just set the parameters you're happy with and get on with something else.
What are the different types of entry order?
There are three distinct kinds of entry order you can use when trading. Market orders vs limit orders vs stop entry orders – which should you choose?
Market entry orders
Market orders let traders buy or sell a security at the market price available at that moment. The order is executed instantly.
For instance, if you see that the EUR/USD price has significantly grown above its trend line and the price you bought at, you may wish to capitalise at that moment. To realise your profits, you could place a forex market entry order and sell the pair.
Limit entry orders
Limit entry orders are directions to purchase securities at a more favourable market price. This means lower than the current price for long positions, and above it for shorts.
This type of entry order can be executed instantly if the price is met but is more often executed in the future once the set price is reached. Limit orders are visible to the market too.
As an example, if you wanted to trade Meta Platforms shares but thought they were currently overvalued, you could put a limit entry order in to purchase a set number of shares at a lower price. Two days later, once the limit is reached, the order is executed.
Stop entry orders
Stop entry orders are the opposite of limit entry orders – they open positions when prices are less favourable (above the current price for long positions, below for shorts).
This type of order is designed for traders that want to trade along with market trends. If the value of a security begins rapidly improving but you're away from your device, a stop entry order will ensure you can place an order so you don't miss out on momentum.
An example here might be if you wanted to trade Apple upon the release of its quarterly report. The buzz around the company's earnings has been good, but there are some unknowns, so you want to be certain that the signs are good before you open a position.
You place a stop entry order above the current price, based on the thinking that if the report is released and the share price rises, then that will be due to satisfactory results and the price will rise even more.
What are the advantages of using an entry order?
From maximising profitability to working more efficiently, there's a range of benefits for traders that use entry orders:
- Simpler time-frame trading – If you're engaging in rapid scalping trading strategies or trades that take place over multiple time frames, entry orders can help you quickly make lots of trades within custom periods.
- Precise control of pricing – Entry orders let you control what price top-3-forex-scalping-trading-strategiesyou open a position at. As such, you can simply take the price you've worked out in your trading strategy and put an order in at that price, negating the need to watch the market.
- Time-efficiency – Placing entry orders allows you to make trades without having to watch for prices to reach or reduce to a certain level. This is great if you plan on being away from your device or want to place multiple trades at once without keeping an eye on multiple charts.
- Less emotion – Trading should ideally be based on fundamental and technical analysis, with emotion stripped away. Placing entry orders limits this – you set an order when emotions are low, so your trades aren't influenced when fear, greed or confidence are high.
- Better pricing – Even deeply committed traders can only watch the markets for part of the day. That means many competitive prices might be missed when away from a device, sleeping or performing a day job. With automated stop and limit entry orders, though, getting the best possible prices becomes an afterthought.
What are the disadvantages of using an entry order?
As with any form of trading, there are a couple of disadvantages to using entry orders traders need to be aware of.
The main one is slippage, especially between trading sessions. This is when the price you try to execute the trade at is overtaken by a new price in the time between the order request and the order execution. As a result, slippage can result in heavier losses or reduced gains.
Second, due to the pre-set nature of entry orders, your trade will be at the mercy of whatever conditions you set it at. As such, you could miss out if the increase or decrease in price is just above or below your order, or you choose a specific order duration (Good 'til Date – GTD) that expires just before the security's price reaches your condition.
Which markets are suited to the use of entry orders?
All markets are suited to the use of entry orders when opening short or long positions. That's because entry orders are simply commands you can give through your trading platform to execute different trades – the specific market or security within said market does not have an impact on the trade.
Entry orders are perhaps more well-suited to markets like forex and crypto CFDs that are more likely to exhibit more extreme swings in price. This is because they can be used to enter or exit at a defined level, as opposed to potential losses being magnified by volatility.
Placing orders on less volatile securities (such as minor shares and indices, and certain commodities) can also be less productive as your order may never come to fruition given the lack of price movement indicative of those securities.
Are entry orders right for you?
Entry orders are used by a wide range of traders to take advantage of favourable price movements. They can be a considerable time-saver and can help take the emotion out of trading. However, there are risks, such as slippage, that every trader needs to be aware of.
To be certain that market, limit and stop entry orders are right for you, make sure to do plenty of research via our education section. You can also start a demo account to get to grips with entry order systems before you enter the market.
Once you do enter the market, always make sure to trade within your means. What's more, make sure you have a strategy in place and only trade with funds you can afford to lose.
Use entry orders as part of your trading strategy with FXCM
With FXCM, you can use a range of tools and tactics – entry orders included – to keep on top of your trades and maximise opportunity and profitability.
FXCM Research Team
FXCM Research Team consists of a number of FXCM's Market and Product Specialists.
Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.