CFD Trading Orders

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.


Two Tips for Avoiding Mistakes when Placing CFD Orders

Making mistakes in order 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 this way, you may test risk-free any order types and their 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.


Main Types of CFD Trading Orders


(1) Market Orders

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.


(2) Stop-Loss Orders

Using a stop order, traders can limit their trading risk to the desired level. Stops allow traders to close any position at the desired price level and avoid further loss. The trader can place in advance or afterward 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 for preventing huge losses if the market has moved against their expectations.

Do not Place Stop-Loss Orders very Close

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 your 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.


(3) Take-Profit Order

A Take-Profit Order is an order that closes a trading position when a certain amount of profit has been achieved. The trader can place in advance or afterward the price at which his position will be closed with a profit. The take-profit order is very useful for all types of market conditions but especially for ranging markets.

(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.

(4) Guaranteed stop-loss orders (GSLO)

Some CFD brokers offer this order type. As we said before the liquidity on the financial markets today is huge and that makes the execution of a stop-loss almost certain. But given the volatility risk of certain assets and the unknown future of our global economy, a Guaranteed Stop-Loss Order may be important for some large CFD investors. A GSLO order allows traders to close their positions no matter the market movements. Of course nothing is for free nowadays therefore GSLO orders are offered in premiums:

(i) GSLO orders come with a spread premium

(ii) GSLO orders can not be placed very close

to the current price


(5) One-Cancels-the-Other Orders (OCO)

An OCO order is a complex trading order that combines a stop price and a limit price. Actually two different orders are placed within an OCO order but only one of them can be executed at the end. That means that if one order is executed then the other order is automatically canceled.

OCO orders can be added to an existing position or to open a new position. Here is an example highlighting the utility of an OCO order.


You anticipate that EURUSD will move from 1.1000 that trades today to 1.1050. But before trading higher to 1.1050 you believe that the pair will test first the support level of 1.0980. But you are not sure. There is also a resistance at 1.1010 which you consider very important. You can place an OCO order that will be executed in two different cases:

Case-1, if EURUSD reaches 1.0980, buy 2 lots

Case-2, if EURUSD breaks 1.1010, buy 2 lots

If one of these two orders is executed the other will be automatically canceled. In the end you will have bought 2 lots of EURUSD either at 1.0980 or at 1.1010.



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■ CFD Trading Orders

George Protonotarios, Financial Analyst (C)

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