Order types in CFD trading

Order types: Basis in CFD trading

The order types in CFD trading do not really differ from the order types in normal stock trading. However, they are much more important in CFD trading and safe handling of them is very important. They are also part of a good risk management.

In addition, it is now common to take advantage of computer trading and include order additions in CFD trading, which the CFD brokers' server automatically executes. However, one should be familiar with the order types, which at first glance seem a bit confusing. A market order is almost self-explanatory, and take-profit and stop-loss are also familiar to most people. However, the different types of limit orders and especially their use require thorough consideration for each trade. Even a trailing stop loss can cause damage if the investor uses it imprudently.

What the individual order types mean is explained in the following article:

Market Order

The market order is immediately placed on the market and executed at the current price. However, this is only possible because no specific price has been set beforehand. In a liquid environment, the buy (ask) or sell (bid) prices can be realized immediately. It must be remembered, however, that the market order is always executed at the next best price. If there are only a few traders in the market, the purchase price can be very high and higher than initially thought.

Limit order

With a limit order, the trader sets a clear price for his order. The execution can therefore only take place when the specified price has been reached. These order types are a special safeguard in CFD trading and are part of any CFD strategy. While with the market order only the next best price is possible, the prospective buyer defines with his limit exactly which price he will accept.

Limit buy order

The Limit Buy order sets the maximum price at which the investor wants to enter the market. The limit buy order is a classic order type for long CFDs. As long as the price moves above the limit, no trading occurs. Only when the CFD reaches the maximum price or falls below it, the system gives the order to the market and the order is executed. With the limited buy order, the trader can be sure that the price of his investment will not be exceeded to his disadvantage and he will buy too expensive.

Assuming the Dax is currently quoted at 15576. The trader expects rising prices, but does not expect good opportunities until the index has fallen to 15 500. For his buy order, he therefore selects a CFD on the Dax as a limit buy order and chooses 15500 as the limit. The broker only executes when the 15500 points are reached.

Limit sell order

When selling a security, the limit sell order ensures that the price does not fall below a minimum. The limit sell order is a classic order type for opening a short CFD. However, it can also be used to close long CFDs. The sale will not be executed if the specified minimum price has not yet been reached. Namely, if the latter enters his price target as a limit sell in the order, he sells into the price movement according to his ideas. 

Let's imagine that a CFD on Tesla was bought at the price of 600$. The investor expects the price to rise to 660$. So he enters his price target right when placing the order or as a change. Two days later, the paper reaches the price and the broker automatically implements the sale.

Take Profit Order

In volatile markets with their ups and downs, many want to make sure that they realize the potential gains. With a take profit, they specify the price up to which they want to follow the movement. The result is similar to a limit stop order. With a take profit, a fixed price is set at which the CFD is closed at a profit.

With our CFD Calculator for the Take Profit you can easily calculate your individual stop.

Stop Loss Order

No trading without a stop loss! The stock market is unpredictable and there are always sharp price swings in the opposite direction. With the stop loss one defines the maximum loss of an investment, which one considers acceptable. The hedge prevents large losses in the event of sudden crashes or miscalculation.

However, a stop loss can remain ineffective if large downward jumps occur in the course of trading, for example in the case of bad news, catastrophes, etc. Then the loss may be greater than previously defined in the stop loss.

With our CFD calculator for the stop loss you can easily calculate your individual stop.

Trailing stop loss order

This variant of the stop-loss order follows the price movement and realizes profits without the trader committing himself to a certain price value beforehand. The distance to the price in the order mask should not be too small, then the trailing stop may sell too early, while the price subsequently rises even further. However, if the setting is too wide, the value of the investment may fall too much due to profit taking.

A trailing stop loss follows the price and continuously adjusts the stop loss upwards. It always uses a certain percentage of the current price that the CFD trader has set beforehand. It is a very popular order form where you can profit from a trend for a long time and the downside risk is clearly limited.

One-Cancels-Other (OCO) Order

The OCO order is a special order that can close other orders. If the new order is opposite to the currently pending order, the old order is automatically deleted and only the new order remains active. This type of order is therefore called One-Cancels-Other order.