Trading Orders

Forex Order Types

In order to buy or sell a currency an order needs to be placed on the dealing software. Whilst orders may differ from broker to broker or among the various trading platforms many are common to all.

Market order
This is an order to buy or sell at the current price. Buy(long) orders are always entered on the Ask price and exited on the Bid Price. Market orders are generally executed instantly at the price you see on the screen. If you are trading in a fast moving market though you might get a requote message, meaning that price has moved from the price you tried to execute at. To avoid this we can use different types of orders to enter the market. Market orders can also be placed by phone.

Limit orders
A limit order is placed to buy or sell at a specific price. A limit order can be used to buy a currency below the current market price, or sell a currency above the current market price. Limit orders can also have a time factor or expiry date attached like GTC good till cancelled or GFD (Good for the day)These will differ from platform to platform. Example: EURUSD current market price 1.4635 Buy at 1.4615 or sell at 1.4675. Limit orders can also be placed via the phone.

Limit orders are also used to set your profit limits on a trade. Example: Buy EURUSD at current market price 1.4635 profit limit 1.4675. When price reaches 1.4675 the trade is automatically closed out in profit provided the profit limit is set prior to price reaching the predetermined figure. Sell EURUSD at 1.4635 profit limit 1.4600.

Stop orders
A stop order is placed to buy or sell at a specific price. Stop orders are used to buy above the current market price or sell below the current market price. Stop orders also have a time factor or expiry date attached like GTC (good till cancelled) or GFD (good for the day)Example: Current EURUSD price 1.4635 Buy at 1.4675 or sell at 1.4635. Stop orders can also be place vial the phone.

Stop Loss.
This is an order place to protect yourself against losing more than you planned for. Example: Buy EURUSD at 1.4635 place stop loss at 1.4600. Should the price come down instead of going up as planned then the stop loss will ensure you lose only 35 pips. Sell EURUSD at 1.4635 place stop loss at 1.4665 Again the maximum loss should only be 30 pips should price not go your way.

Trailing stop loss.
A trailing stop loss is used to lock in profits and prevent profitable trades becoming losing trades should the market retrace suddenly. Example Buy EURUSD at 1.4635, set profit target at 1.4750. Set stop loss at 1.4600. Set trailing stop at 25 pips. When the trade is up 26 pips the stop loss will automatically be move from 1.4600 to the entry price at 1.4635. Assume the price only gets up to 1.4645 and reverses the new stop loss will be at 1.4620 and will close the trade 25 pips below the high price.


OCO
One cancels the other is a combination of 2 limit or stop orders. When one order is executed the other is automatically cancelled. With this order a trade can then buy above resistance or sell below support.

Summary

Whilst there might be many other different order types specific to individual brokers or trading platforms these are the main order types used by most brokers or trading platforms.

Each buy order should have 2 sell orders.
Entry = Buy regardless of order type.
Exit = Sell for profit (limit order)
Exit = Sell for loss (Stop loss)

Each sell order should have 2 buy orders.
Entry = Sell regardless of order type.
Exit = Buy for profit.
Exit = Buy for loss.

Be sure to check your brokers policy on orders as often times orders are not guaranteed. When fundamental announcements come out many brokers consider all orders to be market orders. These orders are not filled at the specified price but rather at a price higher or lower than expected. This can cause you to take bigger losses than planned. They can also put you in the market at prices higher or lower than your order stipulated. Many also increase their spread causing stop losses to be triggered at non market related prices. Ensure therefore you fully understand your brokers order policy.