CFD providers offer a wide range of trading orders. A trading order is actually an instruction to your provider in order to buy or to sell a specified financial asset on your behalf. The proper use of CFD orders adds control to your positions and may reduce significantly your trading risk. Note that different CFD brokers may provide different types of trading orders and therefore before choosing a broker you should ensure that the trade orders you need are available.
Making mistakes in orders placement can be extremely painful when trading derivative products. Here are two simple tips to minimize your risk, especially if you are a beginner:
(A) After you choose a CFD broker you can start a practice account before trading for real money. In that way you may test risk-free any order types and its results on your portfolio. That is useful especially as concerns complex orders as the OCO order type presented below.
(B) Furthermore when you commence trading for real money you are advised to start placing small orders before placing your actual order sizes. For example before you place an order worth 2 lots on Crude Oil you may place a pilot order worth just 0.1 to be sure about the spread charged and the margin used. When your small order is executed then multiple the results x20 and you will be able to forecast the impact of the 2 lots order before you execute it.
A market order executes a long/short trade at the current price quoted on the market. A market order is always executed immediately.
(i) If you are opening a Long (buying) position then you shall buy from the lowest-priced seller
(ii) If you are opening a Short (selling) position you shall sell to the highest-priced buyer
The risk when you place a market order is that you may buy or sell an asset at any price. Most commonly that risk is very low due to the extreme liquidity of financial markets. But be aware that during times of news releases that risk can become huge.
Using a stop order, traders can limit their trading risk to a desired level. Stops allow traders to close any position at a desired price level and avoid further loss. The trader can place in advance or afterwards a stop-loss order. Using a stop-loss order you may:
(i) Close a Long (buying) position when the price of an asset has climbed above a specified price
(ii) Close a Short (Selling) position when the price of an asset has dropped below a specified price.
Stop-Loss Orders are very important for all CFD traders as a tool of preventing huge losses if the market has moved against their expectations.
A small tip here is not to place a stop-loss order very close to the current price. If you tend to place stop-loss orders very close then the Market Noise will stop-you out in most cases. Leave some space for you stop-loss. Personally I use the second support / resistance level as my stop-loss level and not the first level as most traders do. Of course the wider the stop-loss the greater the loss potential, therefore prefer to open less leveraged trades in order to be able to place the right stop-loss without risking much money.
Stock-Indices trend very well without the annoying 'market noise' of other financial instruments. That means you can ride a strong trend using high capital leverage and by placing a narrow stop-loss order. The spreads when trading popular indices are considerably tight.
Trading shares is completely different and you should use very limited capital leverage. Do not trade shares intraday.