An entry order is a type of instruction that traders give to their brokers to buy or sell a security at a specific price point in the future.

This price point is often determined based on the trader’s analysis of market conditions and their trading strategy.

The key aspect of an entry order is that the trade is only executed when the market price reaches the specified level.

Types of Entry Orders

There are two primary types of entry orders:

  1. Limit Entry Order: A limit entry order is an order placed to either buy below the market or sell above the market at a certain price. For instance, if a trader believes that a security is about to reverse its trend after reaching a particular price, they may place a limit entry order at that price.
  2. Stop Entry Order: A stop entry order is an order placed to buy above the market or sell below the market at a certain price. These are used when a trader believes the price will continue to move in the same direction after it hits a certain level.

Advantages of Entry Orders

  1. Automated Trading: One of the main advantages of entry orders is that they allow for automated trading. Once an entry order is set, the trade will be executed automatically when the specified price is reached, even if the trader is not actively monitoring the market.
  2. Risk Management: Entry orders can be an effective tool for managing risk. By setting a specific price for a trade, a trader can limit their potential losses if the market moves in an unfavorable direction.
  3. Strategic Trading: Entry orders allow traders to implement strategic trading plans based on their analysis of market conditions. They can set specific price points for entering a trade based on their predictions of future price movements.

Disadvantages of Entry Orders

  1. No Guaranteed Execution: An entry order is only executed if the market price reaches the specified level. If the price does not reach this level, the trade will not be executed.
  2. Slippage: Although entry orders are intended to be executed at a specific price, this may not always be possible due to market volatility and rapid price movements. This discrepancy between the expected price of a trade and the price at which it is actually executed is known as slippage.
  3. Requires Market Understanding: To effectively use entry orders, a trader needs to have a solid understanding of market dynamics and be able to accurately predict future price movements. Misjudgments can lead to missed trading opportunities or increased risk.