How to Avoid Freak Trades? Which Order Type is Best?
Updated: Sep 9, 2021
One small mistake, and you can lose millions in one trade.
In August and September month (2021), many traders lost a few lakhs because they used the 'SL-M' order type while placing their options trades.
Their trades were executed with an insane amount of slippage and it caused big damage both financially and emotionally.
Everyone called it ‘Freak Trades’ and moved on. But the people who took such a big loss need more time to recover (both financially and emotionally).
Hence, it is better to have complete clarity on the order types.
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Any trade consists of at least two orders: one to get into the trade and another to exit the trade.
An order is either a buy order or a sell order.
If a trade is entered with a Buy order, it will be exited with a Sell order (‘Long’ trades).
If a trade is entered with a Sell order, it will be exited with a Buy order (‘Short’ trades).
Suppose a trader expects the price of a stock will go up. In that case, his trade will consist of one buy order to enter the trade and a sell order to exit the trade (hopefully at a profit after the increase in price).
It is called the ‘Long’ trading concept.
Suppose a trader expects the price of a stock will go down. In that case, his trade will consist of one sell order to enter the trade and a buy order to exit the trade (hopefully at a profit after the decrease in price).
It is called the ‘Short’ trading concept.
Below are important order types available in trading:
Market order (MKT)
Stop Loss order (SL)
Limit order (LMT)