Order types: every one, what it does, and when it hurts you

Every order type guarantees exactly one of price or execution, never both. Knowing which one you gave up is the whole skill.

The trade off underneath all of them

A market order guarantees you trade and says nothing about the price. A limit order guarantees the price and says nothing about whether you trade. Every other order type is a combination of those two facts arranged differently.

The core four

The rest, and what they are actually for

• Trailing stop: a stop that follows the price up by a fixed distance and never moves down. Locks in gains automatically without you deciding. The distance must respect normal volatility or ordinary noise closes the position.
• OCO, one cancels other: a take profit and a stop placed together, where filling one cancels the other. The standard way to leave a position fully managed while you are away, which is most of the time.
• Post only: rejects the order rather than letting it execute immediately as a taker. Used to guarantee the maker fee. Essential for anyone trading enough that the fee difference matters.
• Reduce only: can only shrink an existing position, never open or flip one. On a derivatives venue this prevents the specific and costly accident of a close order becoming a new position in the opposite direction.
• Iceberg: shows only a fraction of the order size on the book at a time. Prevents a large order from advertising itself and moving the price against you.
• TWAP or scaled orders: splits a large order into pieces executed over time. The practical tool for entering or exiting a size the book cannot absorb at once.

Time in force, which quietly decides a lot

How these fail in practice

1. A market order into a thin book. Check the order book depth before sending size. On a smaller asset a market order can move the price several percent by itself, and you pay all of it.
2. A stop placed at an obvious level. Round numbers and visible highs and lows are where stops cluster, and clustered stops attract the moves that trigger them. Place stops where your thesis is wrong, not where the chart looks tidy.
3. A stop too tight for the asset. Crypto routinely moves several percent intraday. A two percent stop on a volatile token is a coin flip, not risk management.
4. Forgetting an order exists. Review open orders weekly. This is a real and common source of unintended positions.
5. A wick filling a stop that the market never really reached. Thin venues produce brief spikes. Trading on deeper venues reduces this materially.
6. Assuming a stop on an exchange protects you if the exchange is down. It does not. During the heaviest volatility, venues have gone offline or degraded, and orders did not execute.

A sensible default set

For most people: limit orders to enter, so you pay the lower fee and choose your price. A stop market to exit at a loss, because getting out is the point. A take profit limit at your target. Place both as an OCO so the position is fully managed without you watching. Reduce only on anything leveraged.

That combination handles almost every situation and removes the requirement to make decisions in the moment, which is the real benefit.

Common questions

What is the difference between a stop market and a stop limit?

A stop market becomes a market order at the trigger and guarantees you exit, possibly at a poor price. A stop limit becomes a limit order and may never fill if the market gaps through it, leaving you exposed in exactly the move you were protecting against.

What is a post only order?

An order that is rejected rather than executing immediately as a taker, guaranteeing you pay the lower maker fee. Worth using for anyone trading enough that the fee difference is material.

What does reduce only mean?

The order can only shrink an existing position, never open a new one or flip direction. It prevents the costly accident of a close order becoming an opposite position on a derivatives venue.