Order types: Limit, Market, Iceberg, Peg - YouTube

Hello everyone, today we will talk about order  types. Orders represent execution instructions.  

There are two main order types:  market order and limit order.

A wide range of trading styles can be achieved  just by combining limit and market orders.  

So today we will talk about such order types also.

Let's start with market and limit orders.  So market order is an instruction to trade  

a given quantity at the best price  possible. Here we have an example.  

We want to buy an ABC asset and we want 1 000  shares. We want to create a market order. So  

this order will be crossed immediately  with the order s1 in our order book,  

because it has the same quantity 1 000 and we  don't care about the price. Market order will  

try to execute at the offer price and whilst a  sell order will try to execute at the bid price.

The main risk is the uncertainty  of the ultimate execution price.

Limit order is an instruction to buy or sell a  given quantity at a specified price or better.  

Here we also have an example of it. We want a  limit order with quantity 1000 at price 100.  

It cannot be crossed, because we don't have  sell orders with this price. It should be placed  

to order book. It would be placed between  b1 and b2 because this order will have  

less time priority but it's placed ahead  of b2 because it has price priority.

and it will look like that

Limit order helps to provide a  liquidity since other traders can see  

this trade at a given price and quantity.  There is a risk of failing to execute.  

Now we will talk about the hybrid order types.

They try to offer the best of  both limit and market orders.

Market to limit order when the order first  arrives, it behaves like a market order, seeking  

liquidity at the best available price, which  becomes its price limit. It offers more certainty  

of execution than a marketable limit order, but  slightly less certainty of the execution price.  

We have an example, that we want to buy 2  000 shares of ABC asset. 1000 shares will  

be crossed immediately with the order S1.  Now we need to fill another 1 000 shares,  

but now we have a limit order.  We can see that we don't have  

other orders with such price, so this  order will be put into the "Buys" column.

You can see the order before it is created  and now it's here with the price 101.  

Market with protection it's an extension of the  market to limit order with the limit price further  

away from the last execution price. It helps to  ensure that execution is not achieved at any cost.  

Now we want to buy 3 500 of ABC with  price limit equates to 103. We can cross  

2500 with the orders S1 and S2. We need to  cross another 1 000 and now we can see that  

we don't have other orders with  which we can cross it. So this order  

will be put into "Buys" column with 103 price.

Conditional order types base their validity on  a condition set. Only when condition is met,  

an actual order being placed. Stop orders  it's a contingent on an activation price.

Once the market price reaches this point, it is  transformed into active market or limit order.  

Activation occurs for buys when the market  price hits the stock price or moves above.

Traling stop orders price follows favorable  moves in the market price. A trailing offset  

is either specified as percentage change.  Once the market price becomes less favorable,  

as you can see here, the stock price remains  fixed until the market price actually reaches  

this top and triggers it. So you can see here  it's triggered. You don't need to try to predict  

the best price level to set the stop at. It's the  improvement of trailing stop borders. There are  

other instructions for conditional orders, such  as durations that the order should be filled:

"to the date" or "till the set time" also order  can be filled in open or closed auction or  

in next auction. There are some conditions about  fill immediate or cancel orders "fill or kill  

all" or "none must be filled" etc. There are also  conditions about routing preferencing linking  

and many others.

Now we will talk about hidden order types.

Whilst transparency allows traders to see the  available supply and demand, it poses problems  

for large orders. They try to reduce signaling  risk for large orders. We will talk about iceberg  

order. These orders comprises of a small visible  peak and a significantly larger hidden volume.

The peak size is configurable, often a  percentage of the normal market size.  

Each time this displayed order is fully  executed, the venue's trading system splits  

a new order from the hidden volume, until  the whole iceberg order is completed.

Each displayed order has normal time priority,  whilst the hidden volume just has price priority.  

So let's see how it works on the example.  We have a hidden sell order with quantity  

2000 at price 102. We can see that the  peak is configurable and it's set to 1000.  

You can see the order S1, it's our iceberg  order or visible part of our iceberg order.

For example we got a market BUY order with  that quantity and this order will hit the first  

2 orders. It will be crossed with S1 and S2.

Now we will see, that our S1 order is  completed and the new order is split  

from the hidden quantity. S4 is created and it  has less time priority so it's placed after S2.

Discretional orders afforded the trader the  trader more freedom in how particular order  

should be worked. They offer more  dynamic handling of limit prices.

The discretionary order it's a limit order  with a slightly more flexible limit price.  

For BUY order the real price limit is actually  the limit price + discretionary amount.  

Visible orders will have a priority over  the discretionary orders. We want now to buy

an asset ABC. We will create a discretionary order  with the price 100 and the discretionary range  

of one. Now you can see the order  B1. It's our discretionary order.  

S1 can be matched with B1 because  of our discretionary range.

S1

disappeared and B1 now have 500.

Pegged orders provide a dynamic limit  price. It can help to reduce the inherent  

miss-pricing risk of standing limit orders.  A pagged order's limit price may track ASK,  

BID or even Mid price, applying  an additional offset amount.

We want to create a peg order. It will be

a limit order taken from the best BID  with upset of 1. It's our B2 order.  

When a new order joins the order book, the  best BID will change. Now you can see, that  

the new best BID is 101. Our order should be  updated. It's updated with a new limit price at  

100 and it is placed after B1 because of  time priority. It was created later than B1.  

Routed orders types help to seek additional  liquidity and allows more complex routing  

logic than possible via conditions. There are  some order instructions that cater for routing,  

allowing orders to be sent to specific  venues or to stay at a single venue.  

Pass-through orders allow an order to initially  pass-through the hosting venue on the way to their  

ultimate destination, often the primary exchange.  Routing-strategy orders extend the concept  

of pass-through orders to allow more complex  routing instructions. They may enable orders to  

participate in auctions or be routed to additional  venues before reaching their final destination.  

Order types are counting to evolve,  but the line between orders and  

traiding algorithms is becoming blurred.  Thank you for watching this video. Bye.