For
stocks, options, CFDs and Spreadbets if your broker offers a 'demo' or
paper trade account you can check out their order procedures and
terminology there at no risk.
They should also have an FAQ, and should be happy to guide you by online video tutorials, email or phone. It is very important that you get this right, as mistakes can be expensive.
Order Types
Typically, for stock trades we use 3
order types, Stop/Limit; Limit, and Stop. The idea is that you do not
have to hover over the market all the time.
A) Stop/Limit order type:
- Used to enter into a trade (Order to open)
- If your stop price is touched, breached or traded through the order
triggers. The Limit part (which can be the same price) will protect you
against being gapped into a trade at an unfavourable price.
B) Limit order type:
- Used to exit a trade upon hitting First Profit (P1)
- It triggers when the price
touches, breaches or trades through (at or better than) your limit
price.
C) Stop order type:
- Used to exit a trade when the stock hits your Stop Loss
- It triggers when the price touches,
breaches or trades through your Stop, closing the part of the position
following P1, or the whole position if P1 is not taken.
- When
P1 has been taken, this Stop order than can be edited to become your
Dynamic Trailing Stop, when the trade continues to move in your favour,
providing 'windfall' profits until taken out.
Note:
You will need to check with your
broker that they allow partial closures of positions (for the P1) and
that they allow all those orders to be open on the same trade. This is
usually achieved by placing the order to open, and then 'attaching' a
'Bracket Order' consisting of the P1 (Limit) and Initial Stop Loss to
it, so the P1 and protection orders are conditional on the trade
triggering in the first place. Thus, the opening order may be
considered as the 'parent' order, and the brackets of Limit and Stop the
'child' orders.
Again, it is very important that you are thoroughly familiar with your chosen broker's procedures and terminology.
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