Forex orders come in various types: Market orders execute at current rates; Limit orders buy/sell at a specified price; Stop orders trigger once a set rate is reached; Trailing stops adjust as prices move favorably; OCO orders combine multiple orders, canceling one when the other is executed.
"Would you like pips with that?"
No, we're not talking about that kind of order.
In the world of forex trading, an order refers to an instruction sent via your broker's trading platform. It's a request to either open or close a transaction when specific conditions you've set are met.
Essentially, the term "order" outlines how you intend to enter or exit a trade.
It's essential to be aware of the types of orders your broker accepts because this can vary from one broker to another.
There are some fundamental order types offered by all brokers, along with a few that might sound a bit unconventional.
Orders can be categorized into two main groups:
Market Order: This type of order is executed immediately at the price quoted by your broker.
Pending Order: A pending order is designed to be executed at a later time, based on the price level you specify.
Here's a quick overview of the different types of orders within each of these categories.
| Market Orders | Pending Orders |
| Buy Sell |
Buy Limit Buy Stop Sell Limit Sell Stop |
A market order is a directive to buy or sell at the prevailing market price.
For instance, if the current bid price for EUR/USD stands at 1.2140, and the ask price is 1.2142, executing a market order to buy EUR/USD would result in the purchase occurring at the price of 1.2142.
In essence, you simply click the "buy" button, and your trading platform promptly executes a buy order at the (hopefully) exact market price.
To draw a parallel with an everyday scenario, it's somewhat akin to Amazon.com's 1-Click ordering. You spot the current price, click once, and the purchase is complete! The only distinction here is that you're dealing with the exchange of one currency for another, rather than buying a Justin Bieber CD.
However, please bear in mind that depending on market conditions, there may be a variance between the price you initially selected and the final executed price on your trading platform.
A limit order is a directive placed to either buy below the market price or sell above it, at a specific designated price.
This order comes into play when the market reaches the "limit price."
A "Buy Limit" order is set to buy at or below a specified price.
A "Sell Limit" order is established to sell at a specified price or a more favorable one.
Once the market attains the "limit price," the order is activated and executed at that very price or at a superior one.
In the depicted image, the blue dot represents the current price. Observe how the green line is positioned beneath the current price. To trigger a BUY limit order at this level, the price must first decline to that point.
In summary, a limit order exclusively executes when the price becomes more advantageous for you.
Now, consider the red line, which is positioned above the current price. To activate a SELL limit order at this juncture, the price must first ascend to that level.
For instance, if EUR/USD is presently trading at 1.2050 and you wish to go short if it reaches 1.2070, you have two options. You can either monitor your screen until it reaches 1.2070 (at which point you'd execute a sell market order), or you can set a sell limit order at 1.2070 and leave your computer to attend your ballroom dancing class.
Should the price reach 1.2070, your trading platform will automatically execute a sell order at the most favorable available price.
This type of entry order is employed when you anticipate a price reversal upon reaching the specified price.
To clarify, a limit order to BUY at a price lower than the prevailing market price will execute at that specified price or lower. Conversely, a limit order to SELL at a price higher than the current market price will execute at that specified price or higher.
A stop order effectively halts the execution of an order until the market price reaches a specified stop price.
This type of order is used when you wish to buy only after the price ascends to the stop price, or sell only after the price declines to the stop price.
A stop entry order is a directive placed to buy above the current market price or sell below it, at a designated price.
A "Buy Stop" order is positioned to buy at a price higher than the market price, activating when the market price touches or surpasses the Buy Stop price.
A "Sell Stop" order is established to sell when a specified price level is reached.
In the provided image, the blue dot represents the current price. Notice that the green line is situated above the current price. To trigger a BUY stop order at this point, the current price must continue to rise.
Conversely, observe how the red line is positioned below the current price. A SELL stop order placed here will only be activated if the current price continues to fall.
As you can see, a stop order executes only when the price becomes less favorable for you.
For instance, let's say GBP/USD is currently trading at 1.5050 and is on an upward trajectory. You believe that the price will persist in this direction if it reaches 1.5060. In this case, you have two options to act on your belief:
Monitor your computer and execute a market buy when it reaches 1.5060 OR
Set a stop entry order at 1.5060.
A stop loss order is employed to close a position if the market price reaches a specified level, which may represent either a loss or a profit.
It is a type of order linked to a trade with the primary aim of curbing further losses should the price move against your position.
For a long position, it takes the form of a sell STOP order, while for a short position, it becomes a buy STOP order.
It's crucial to remember this type of order.
A stop loss order remains active until the position is liquidated or until you choose to cancel the stop loss order.
For example, if you went long (buy) on EUR/USD at 1.2230, and to cap your potential loss, you set a stop loss order at 1.2200. This signifies that if EUR/USD plunges to 1.2200 instead of advancing, your trading platform will automatically execute a sell order at 1.2200, at the best available price, thus closing your position and resulting in a 30-pip loss (not ideal!).
Stop losses are incredibly valuable if you prefer not to remain glued to your screen all day, anxious about potential losses. Instead, you can simply establish a stop loss order on any open positions, allowing you to attend to other commitments without worry.
A trailing stop is a special type of stop loss order that remains tethered to an open position and adjusts automatically as the profit reaches a specified level that you set.
This stop loss order moves in correlation with price fluctuations.
Let's illustrate this with an example: Imagine you've decided to initiate a short position on USD/JPY at 90.80, with a trailing stop set at 20 pips.
Initially, your stop loss is placed at 91.00. Should the price decline and reach 90.60, your trailing stop would move down to 90.80, essentially breakeven.
It's essential to note that this newly adjusted stop price remains fixed. It won't widen if the market moves against you.
Returning to our example, with a trailing stop of 20 pips, if USD/JPY falls to 90.40, your stop would then shift to 90.60, effectively locking in a 20-pip profit.
Your trade will remain open as long as the price doesn't move against you by 20 pips. Once the market price hits your trailing stop price, a market order will be executed to close your position at the best available price.
New traders often find themselves perplexed by limit orders and stop orders because both involve specifying a price.
Both types of orders enable traders to communicate to their brokers the price at which they're willing to execute a trade in the future.
However, the distinction lies in the purpose of the specified price.
A stop order triggers an order when the market price reaches or surpasses a predetermined stop price. For example, if EUR/USD is trading at 1.1000, and you've placed a stop entry order to buy at 1.1010, your order will be executed when the price reaches 1.1010. However, it doesn't guarantee that your buy order will be filled precisely at 1.1010. Depending on market volatility, it might get filled at 1.1011 or another price close by. Essentially, the stop price serves as a threshold for order execution, and the exact fill price depends on market conditions.
In contrast, a limit order can only be executed at a price that equals or surpasses a specified limit price. For instance, if EUR/USD is trading at 1.1000, and you've set a limit entry order to buy at 1.1009, your order will not be executed unless you can obtain a fill at 1.1009 or a better price. Think of a limit price as a price guarantee – you're ensured that your order will only be executed at the limit price or a better one. However, there's a caveat: the market price may never reach your limit price, potentially resulting in your order never being executed. In the earlier example, EUR/USD may only dip to 1.1009 before surging. Consequently, your long position order remains unexecuted, and you watch EUR/USD climb without you. ðŸ˜
This is the tradeoff when employing a limit order instead of a market order.
"Can I order a grande extra hot soy with extra foam, extra hot split quad shot with a half squirt of sugar-free white chocolate and a half squirt of sugar-free cinnamon, a half packet of Splenda and put that in a Venti cup and fill up the “room” with extra whipped cream with caramel and chocolate sauce drizzled on top?”
Oops, that's the wrong unusual order.
A GTC order remains active in the market until you decide to cancel it. Your broker will not cancel the order at any time. Therefore, it is your responsibility to remember that you have the order scheduled.
A GFD order remains active in the market until the end of the trading day.
Because foreign exchange is a 24-hour market, this usually means 5:00 pm EST since that’s the time U.S. markets close, but we’d recommend you double-check with your broker.
GFC and GTC are known as “time in force” orders.
The “time in force” or TIF for an order defines the length of time over which an order will continue working before it is canceled. Think of it as a special instruction used when placing a trade to indicate how long an order will remain active before it is executed or expires.
An OCO order is a combination of two entry and/or stop loss orders.
Two orders are placed above and below the current price. When one of the orders is executed, the other order is canceled.
An OCO order allows you to place two orders at the same time, but only one of the two will be executed.
For instance, let’s say the price of EUR/USD is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls below 1.1985.
The understanding is that if 1.2095 is reached, your buy order will be triggered, and the 1.1985 sell order will be automatically canceled.
An OTO is the opposite of the OCO, as it only puts on orders when the parent order is triggered.
You set an OTO order when you want to set profit-taking and stop-loss levels ahead of time, even before you get in a trade.
For example, USD/CHF is currently trading at 1.2000. You believe that once it hits 1.2100, it will reverse and head downwards but only up to 1.1900.
The problem is that you will be gone for an entire week because you have to join a basket weaving competition at the top of Mt. Fuji where there is no internet.
In order to catch the move while you are away, you set a sell limit at 1.2000 and at the same time, place a related buy limit at 1.1900, and just in case, place a stop-loss at 1.2100.
As an OTO, both the buy limit and the stop-loss orders will only be placed if your initial sell order at 1.2000 gets triggered.
An OTO and OTC order are known as conditional orders. A conditional order is an order that includes one or more specified criteria.
The basic forex order types (market, limit entry, stop entry, stop loss, and trailing stop) are usually all that most traders ever need.
To open a position, the following pending orders may be used:
"Buy stop" to open a long position at a price higher than the current price
"Sell stop" to open a short position at a price lower than the current price
"Buy Limit" to open a long position at a price lower than the current price
"Sell Limit" to open a short position at a price higher than the current price
Unless you are a veteran trader (don’t worry, with practice and time you will be), don’t get fancy and design a system of trading requiring a large number of forex orders sandwiched in the market at all times.
This is always a tradeoff when using a limit order instead of a market order.
For example, if you want to buy "right now," you'll have to pay the higher ask price. This is called a "market order" as it will trade at whatever the market price is.
If you prefer to save some money, you'll need to use a "limit order."
The problem with being patient is sometimes the price continues to go up and your limit order is never filled.
If you still want to get in a trade, you have to either enter a market order or update your limit order. This now means you’ll end up paying (even) more than the original ask price.
Stick with the basic stuff first.
Make sure you fully understand and are comfortable with your broker’s order entry system before executing a trade.
Also, always check with your broker for specific order information and to see if any rollover fees will be applied if a position is held longer than one day.
Keeping your ordering rules simple is the best strategy.
DO NOT trade with real money until you have an extremely high comfort level with the trading platform you are using and its order entry system. Erroneous trades are more common than you think!
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