Conditional Order

Wouldn’t it be great if we could always place a conditional order? “I’ll take the spaghetti if it comes with sausage imported from Italy.” Or, “I’ll buy these shoes if they have an orthotic built in.”

Savvy traders in the stock market like to place conditional orders with specific criteria, such as a stop order (an order to buy or sell a stock once it reaches a specified price), a limit order (an order to buy or sell a stock at a specific price or better), or a stop limit order (like...a stock currently trades at $40 and you’d like to sell if it goes below $39, but only if it can be sold for $38 or more). In other words, in a conditional order, traders state certain prices that a stock has to reach before they'll buy or sell, not just the first available price. They might also state that the stock has to reach a certain volume, or be available at a price for a certain length of time, or hit a percent change.

Another type of conditional order is called one-cancels-other. Here the trader can place several conditional orders, and when one hits the specified criteria, the order executes and automatically cancels all the other orders. An order-sends-order is kind of the opposite; when one order is executed, it triggers more orders to be placed.

Let’s say Tracy Trader has been following a certain stock and believes it's about to go down in price. She places a conditional order to buy a put option (predicting the price will go down) once the stock hits $20. Her conditional order would be to buy the put option when the underlying stock goes down to $20.