Advanced Stock Order Types to Fine-Tune Your Market Trades

Basic stock order types can still cover most of your trade execution needs. Perhaps it's time to move beyond the basics. Learn about OCOs, bracket orders, stop-limit orders, and trailing stop orders. tuning: advanced order types
5 min read
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Key Takeaways

  • Advanced stock orders are designed for special trading circumstances that require extra specifications
  • Most advanced orders are either time-based (durational orders) or condition-based (conditional orders)

  • Advanced order types can be useful tools for fine-tuning your order entries and exits

If you’re an experienced trader, one whose strategies have grown toward the more sophisticated side of things, then your trade entries and exits might require a bit of extra nuance. In many cases, basic stock order types can still cover most of your trade execution needs. But if your orders require a bit more fine-tuning, there are a host of advanced stock order types at your disposal.

As with the more basic variety of stock orders, you probably want to know these advanced order types really well so you can match them to the appropriate context and avoid errors that could be risky or costly. Note that some order types described here straddle the “basic” to “advanced” category—so you might want to familiarize yourself with all of them to better understand when and when not to use them.

Before we get started, there are a couple of things to note. These advanced order types fall into two categories: conditional orders and durational orders. Conditional means that an order is to be filled under specific conditions or that the fill will trigger a condition. Durational means that an order must take place within a specific time frame, or “time in force”.

One-Cancels-Other Order

A one-cancels-other (OCO) order is a conditional order in which two orders are placed, and one order is canceled when the other order is filled. This may sound complicated, but it’s fairly easy to understand in context.

  • Suppose you buy shares of a stock trading at $40. Your profit target is 30%, and you don’t want to lose more than 10% value in your position.
  • You might place an OCO order consisting of a sell limit (“take profit” order) at $52 and a sell stop at $36.
  • If the stock’s price reaches $52, your position will close out at a profit and your sell stop will immediately be canceled, removing the risk of inadvertently opening a short position should the stock decline to trade again at $36.

Bracket Order

Available in most trading platforms designed for active traders, a bracket order will immediately place an OCO “take profit” and a stop order once a position is opened.

  • If you enter a long position, a bracket order will immediately place an OCO sell limit (take profit) and sell stop.
  • If you enter a short position, a bracket order will place an OCO buy limit (take profit) and buy stop.

Stop Limit Order

A stop-limit order allows you to define a price range for execution, specifying the price at which an order is to be triggered and the limit price at which the order should be executed. It essentially says: “I want to buy (sell) at price X but not any higher (lower) than price Y.”

Suppose you’re eyeing a stock that’s trading at $120. You want to buy when the price reaches $125, but not if it exceeds $130. So you place a stop-limit order—a buy stop at $125 and a buy limit at $130. By doing this, your order can get triggered at the lower (specified) price while preventing any orders from being triggered beyond your price limit. So if the stock opens at a gap beyond $130, your order isn’t filled until the price falls back to $130 or below. For short sale positions, you’d do the reverse.

If you’re using the thinkorswim® platform, you can set up brackets with stop and stop-limit orders when placing your initial trade. Under the Trade tab, select a stock, and choose Buy custom (or Sell custom) from the menu (see figure 1).

Creating a custom bracket stock market order

FIGURE 1: BRACKET ORDERS. To bracket an order with profit and loss targets, pull up a Custom order. Image source: the thinkorswim® platform. For illustrative purposes only. 

Good ’Til Canceled (GTC) vs. Day Order

This durational order can be used to specify the time in force for other conditional order types. It basically means: “Keep this order active until I cancel it.” Orders that haven’t been filled by the end of the day are usually canceled once the market closes. But if you want to keep a buy order or sell order in place until it’s filled, or however long your broker will allow you to keep it active (typically no more than 90 days), this is when you might want to use a GTC order.

A Quick Note on Time in Force

A bit of common sense: If you’re placing a conditional order type that involves two or more orders, make sure that the time in force (TIF) for each order is identical. For example, if you’re placing an OCO (one-cancels-other) order, it wouldn’t be good if the order to be canceled immediately is a GTC (good ’til canceled) order.

Also, don’t confuse a day order (which gets canceled at the end of the day) with a GTC order (which doesn’t get canceled at the end of the day). You don’t want to be surprised by a “mystery position” the following day floating around in the negative return zone. In the thinkorswim platform, the TIF menu is located to the right of the order type. 

Trailing Stop Order

Trailing stops are not “orders” per se, but they’re a means to automatically move or “trail” stops (basic stop orders). Think of the trailing stop as a kind of exit plan.

Here’s how it works. Let’s say you purchased shares of stock, and your entire position is now in the profit zone. What might you do with your stop? You can leave it in place. You can move it up to a more “break-even” level to avoid loss should the market move against you. Or you can set it to “trail” your profitable position as it moves higher.

  • Suppose you set a trailing stop a specified distance below your current position.
  • If your position continues to move higher, your trailing stop also moves higher.
  • If your position declines to match the price of your trailing stop, your stop order is triggered, closing your position.

You’re probably thinking, “OK, but how far below my position should the trailing stop follow?” There are many ways to calculate a trailing stop. If you’re using the thinkorswim platform, you could pull up an order ticket and select from the menu under the order type (see figure 2). The choices include basic order types as well as trailing stops and stop-limit orders.

Choose a stock market order type
FIGURE 2: ORDER TYPES. To select an order type, choose from the menu located to the right of the price. Image source: the thinkorswim® platform. For illustrative purposes only. 

Before implementing any of these order types, it’s important to know a few more things about stop orders. With a stop limit order, you risk missing the market altogether. In a fast-moving market, it might be impossible to trigger the order at the stop price, and then to execute it at the stop-limit price or better, so you might not have the protection you sought.  A trailing stop will not guarantee an execution at or near the activation price. Once activated, they compete with other incoming market orders. And, of course, a limit order doesn’t guarantee execution as the market may never reach your limit price.

The Bottom Line

Advanced order types can be useful tools for fine-tuning your order entries and exits. But you need to know what each is designed to accomplish. And as with any trade idea or component you’re trying out for the first time, consider practicing first in a simulated environment such as the paperMoney® stock market simulator on the thinkorswim platform.   

Archaic Corner:
A Few Order Types Rarely Used by Retail Investors

Immediate-or-Cancel (IOC) Order

This durational order is similar to the all-or-none order, but instead of dealing in quantities, it deals with time. Essentially, the IOC order says: “Give me as much of my order as possible within this specific time frame (usually a few seconds) and cancel all unfilled orders once that time has passed.” You can specify the time in force for this type of order.

 Suppose you want to buy 5,000 shares of stock, but you don’t want to get filled at a wide range of prices. Or maybe volume is on the thin side and you don’t want to move the market. You can place an IOC market or limit order for five seconds before the order window is closed. You might receive a partial fill, say, 1,000 shares instead of 5,000. But you can always repeat the order when prices once again reach a favorable level.

Why this is rarely used: Unlike institutional investors who can trade at high levels of volume, most investors don’t have to worry about moving the markets. Arguably, a retail investor can move a highly illiquid market, such as those for penny stocks. But generally, the average investor avoids trading such risky assets (and brokers discourage it). Hence, there’s not much need (or demand) for this type of order.

All-or-None (AON) Order

Its name says it all: “Give me the entire quantity of shares I’m asking for or don’t give me any at all.” An AON order ensures that you won’t get a partial fill. So if you order 1,500 shares of a stock, you’ll receive exactly that amount, as long as there are enough shares at the time of the order to fill your request.

Why this order type is practically nonexistent: AON orders were commonly used among those who traded penny stocks. Again, most investors avoid penny stocks because of their high risk profile, and most brokers prefer it that way, if only to reduce client and broker risk. Hence, AON orders are generally absent from the order menu.

Fill-or-Kill (FOK) Order

The FOK order is unique in that it’s the only order type you don’t want to yell over the phone to your broker when in a public setting, as people invariably get the wrong idea. Aside from this, the FOK order is like an all-or-nothing (AON) order but with the time limit of an immediate-or-cancel (IOC) order.

Confusing? It’s not, really. The FOK order essentially means: “Fill my entire order within the specified time frame or kill the order.” For example, suppose you want to buy exactly 500 shares of stock within the next 10 seconds. If the shares are available within that 10-second time frame, you’ll get filled. If not, your order will expire after 10 seconds.

Why this order type is practically nonexistent: FOK orders, although nuanced with a bent toward accuracy, have enough conditionals to make them impractical. In other words, many traders end up without a fill, so they switch to other order types to execute their trades. Over time, traders have mostly used other order types, effectively “killing” the fill-or-kill order through low demand.

Want to learn more about basic stock order types? Watch this short video:

Key Takeaways

  • Advanced stock orders are designed for special trading circumstances that require extra specifications
  • Most advanced orders are either time-based (durational orders) or condition-based (conditional orders)

  • Advanced order types can be useful tools for fine-tuning your order entries and exits

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