Compound orders

Compound orders are those that assume a certain logical chain in their execution. That’s why they are also referred to as conditional orders. Strictly speaking, such an order is not a single order: it’s a sequence of orders that are triggered one by another.

As the most common example, let’s consider a stop-limit order. Unlike stop or limit orders, it requires two prices to be specified: stop and limit. If such an order is sent to the execution venue, first, the venue’s matching engine waits till the stop price of the order is touched by the market (best bid/ask) price. After that, the order is executed using its limit price exactly like when executing a limit order. So, a stop limit order is a combination of both.

For example, if the current price of EUR USD is 1.01015 and I want to buy it at 1.0102, I can use a stop order to enter the market – but I remember that during the execution of a stop order, I can get a potentially unlimited slippage. Therefore, I send a stop limit order with two prices: a stop price of 1.0102 and a limit price of 1.01025. Then, as soon as 1.0102 is touched by the market (this means that either ask or bid becomes equal or greater than 1.0102; see the explanation on special execution conditions for stop orders in the previous section), a limit-buy order at 1.01025 is actually executed. So, I will buy EURUSD at any price between 1.0102 (the stop price) and 1.01025 (the limit price).

It’s worth mentioning that stop-limit orders are used only to enter the market and never used as stop-loss orders. A stop-loss order must ensure the entire order size is filled, but a stop-limit order, like any limit order, cannot guarantee the execution of the entire order size.