Chains And Triggers: The Beginners Guide to Advanced Orders

Less about “set and forget” and more about trade and risk management. These order types can help traders to limit losses, protect profits and optimize strategies.

In a previous article, we looked at basic order types and in this, the second of the series, we give a brief overview of some of the more advanced ones.

A few of them may look and sound confusing at first, but if you have a good grasp of the basic orders, they are less so, since in many respects they can be viewed as extensions or refinements of stop, limit and market orders.  

You may never use some of these orders and their use depends on the rules of the specific exchange or market in which you trade, but they can be useful, particularly for improved trading efficiency and automation of trading.

To make them easier to understand, we’ve broken them down into three types:

• Time-conditional orders 
• Market-conditional orders
• Multi-conditional or contingent orders.

Time-conditional orders

As the name suggests, these are orders that are executed at a specific time or date. 

MOC (Market On Close) orders are orders that are placed with the intent of executing at the close of a day’s trading session. After a certain time nearer to market close, they cannot be modified or cancelled. A variation of this is the LOC (Limit On Close) order which sets maximum or minimum prices to buy or sell at close.

MOO (Market On Open) orders are the opposite and are placed to execute at the opening of a trading session.  Both Market On Close and Market On Open orders are, as far as possible, guaranteed to be executed and at market prices. Traders typically use these two orders when they anticipate specific price directions.   

Another type of time-conditional order is the no-time-limit order or the GTC (Good Til Cancelled). As all stock orders are in fact orders for one trading day, these remain open until they are manually executed or cancelled by the trader. However, it must be remembered that brokers will not keep these open indefinitely, and usually only between 30 to 90 days.

Market-conditional orders

At a basic level, a stop or a limit is a market-conditional order: whether they are executed or not depends on price and hence on the market. 

These conditions can be based on price and/or size. Fill or Kill (FOK) orders are orders that must be executed in their entirety or not at all. Immediate Or Cancel (IOC) orders are orders that must be executed immediately or cancelled. 

Other examples are trailing stops are orders that adjust their stop price as the stock’s price moves in one direction, but the stop will not move in the opposite direction. 

More complex are iceberg orders. These are large orders that are broken up into smaller parts in order to protect traders, usually institutional traders, from market movements that may occur as a result of the size of their order. They are a type of limit order with an extra parameter – maximum displayed size. This parameter instructs the exchange to display in its market data only this amount. 

Contingent orders

Contingent orders are those that are dependent on the execution of another order. 

Bracket orders are orders that specify a target price and a stop price. As soon as the main order is executed, the system will place two more orders (profit-taking and stop-loss). When one of the two orders (profit-taking or stop-loss) gets executed, the other order will automatically get cancelled.

In the same vein, there is the One-Cancels-the-Other (OCO) order. These are orders that involve two different but simultaneous orders, the first to be filled will automatically cancel the other and any related orders associated with it.

Valuable tools for traders

To sum up, the benefits of using advanced orders are numerous. Some are especially useful to help to reduce risk by providing mechanisms to limit losses and protect profits. Additionally, they can help to improve efficiency by automating certain aspects of trading. However, they are less about “set and forget” and more about trade and risk management. On the downside, they can be inflexible, and they may come with higher brokerage fees. 

But, overall, they are valuable tools for traders looking to optimize trading strategies.