A tag in trading is a set price that a security or another asset must reach before traders can execute a trade. In other words, the tag is the minimum price that a buyer is willing to pay for an asset or the maximum price that a seller is willing to accept. If the asset’s current market price does not reach the tag, no trade will occur. Both traders and investors use tags to ensure that they get what they want from a trade.
The different types of tags
There are a few different tags that traders and investors can use:
The absolute tag
The most common type is the absolute tag, a set price that must be reached before a trader can execute a trade. For example, if a trader wants to buy a stock at £10 per share, the absolute tag would be £10. If the stock never reaches that price, the trade will not be executed.
The relative tag
Another type of tag is the relative tag. A relative tag is based on the current market price of an asset rather than a set price. For example, if a trader wants to buy a stock 10% below its current market price, the relative tag would be 10%. If the stock never falls 10% below its current market price, the trade will not be executed.
The time-based tag
Another type of tag is the time-based tag. A time-based tag is based on how long an asset has been trading at a specific price. For example, if a trader wants to buy a stock when trading at £10 per share for more than 5 minutes, the time-based tag would be 5 minutes. If the stock never trades at £10 per share for more than 5 minutes, then the trade will not be executed.
How tags are used
Traders can use tags in a few different ways. The most common way is for traders and investors to set their tags. For example, a trader might set an absolute tag of $10 per share when buying a stock, and if the stock never reaches that price, the trade will not be executed. Another way to use tags is through trading platforms. Trading platforms like eToro offer tags as a way to automate trades. For example, eToro’s ‘CopyTrader’ feature lets users set tags on their trades. When the tag is reached, the trade is automatically executed. Lastly, some brokers offer tags as a way to execute trades. For example, Saxo Bank offers a ‘One-Tag’ service that lets investors set a tag on their trades. When the tag is reached, the trade is automatically executed.
What are the benefits of using tags?
The first benefit is that tags can help prevent executing trades at too high or too low prices. By using a tag, traders and investors can be sure that they buy or sell an asset at the price they want. Another benefit of using tags is that they can help to automate trades. For example, if a trader sets a tag on their trade, it will be automatically executed when the tag is reached, saving the trader time and effort.
What are the risks of using tags?
There are some risks associated with using tags. The first risk is that tags can delay or prevent trades from being executed. For example, if a trader sets an absolute tag of £10 per share when buying a stock, the trade will not be executed if the stock never reaches that price.
The bottom line
Tags can be a valuable tool for traders and investors to ensure they get what they want from stock investing. By setting a tag, traders and investors can be sure that they buy or sell an asset at the price they want. Tags also help prevent executing trades at too high or too low prices. Novice traders who want to trade stocks, CFDs or forex should use a reputable and reliable broker.