Types of Foreign Exchange (FX) Orders

An order is a request to begin or close a transaction using your broker's trading platform if the instructions supplied by you are met. The term "order" refers to the method through which you will enter or exit a trade.

June 20, 2022 - 05:44 PM 327 views

Types of Foreign Exchange (FX) Orders

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An order is a request to begin or close a transaction using your broker's trading platform if the instructions supplied by you are met.

The term "order" refers to the method through which you will enter or exit a trade.

The many sorts of orders that can be put in the forex market (FX) are discussed here.

Make sure you understand the different sorts of orders that your broker accepts.

Different forms of FX orders are accepted by different brokers.

Types of Forex Market (FX) Orders

There are certain standard order types that all brokers offer, as well as some unusual ones.

Orders are divided into two categories:

Market order: A market order is an order that is immediately executed against a price set by your broker.

Pending order: An order that will be executed at the price you specify at a later time.

Within each bucket, here's a quick "map" of the many types of orders.

Market Orders

Pending Orders

Buy

Buy Limit

Buy Stop

Sell

Sell Limit

Sell Stop

Market Order

An order to purchase or sell at the best available price is known as a market order.

The bid price for EUR/USD, for example, is currently 1.2140, while the ask price is 1.2142.

If you wanted to buy EUR/USD on the open market, it would be offered to you for 1.2142.

Your trading software would immediately execute a buy order at that (hopefully) exact price if you clicked buy.

If you've ever done any shopping on Amazon.com, you've probably used their 1-Click ordering feature. If the current price appeals to you, simply click once and it's yours!

The only difference is that instead of buying a Justin Bieber CD, you are buying or selling one currency against another one.

Please be cautious. In a trading platform, depending on the market conditions, there might be a difference between the costs you selected and the final price that is achieved.

Limit Order

A limit order is an order to purchase or sell at a specific price below or above the market price.

When the market reaches the "limit price," this is an order to buy or sell.

You make a "Buy Limit" order to purchase anything at or below a certain price.

You set a "Sell Limit" order to sell at or above a certain price.

The order is activated and executed at the "limit price" after the market hits the "limit price" (or better).










In the above image, the blue dot represents the current price.

The green line is below the current price, as you can see. If you place a BUY limit order here, the price must first fall below this level in order for it to be triggered.

As you can see, you can only place a limit order if the price moves in your favour.

The red line is above the current price, as you can see. If you set a SELL limit order here, the price must first move up here in order for it to be triggered.

The EUR/USD, for example, is presently trading at 1.2050. If the price reaches 1.2070, you should go short.

You can either wait for it to reach 1.2070 by sitting in front of your monitor.

You can fix a sell order limit at 1.2070 points.

Your trading platform will automatically execute a sell order at the best available price if the price rises to 1.2070.

When you feel the price will reverse after it reaches the price you stated, you utilize this form of entry order!

A limit order to BUY at a price lower than the current market price will be filled at the specified price or less.

A limit order to SELL at a price higher than the current market price will be fulfilled at a price that is equal to or more than the designated price.

Stop Entry Order

A stop order prevents an order from being executed until the price reaches a certain level.

When you wish to buy only when the price rises to the stop price or sell only when the price falls to the stop price, you'd use a stop order.

A stop entry order is an order to purchase or sell at a specific price above or below the market.

When the market price reaches or passes through the Buy Stop price, you issue a "Buy Stop" order to buy at a price above the market price.

You set a "Sell Stop" order, which instructs you to sell when a certain price is reached.











In the above image, the blue dot represents the current price.

Did you notice the green line which is above the current price? If you place a BUY stop order here, the current price must continue to rise in order for it to be triggered.

The red line is below the current price, as you can see.

If you enter a SELL stop order here, the current price must continue to decline in order for it to be triggered.

As you can see, you can only use a stop order when the price becomes less advantageous to you.

GBP/USD, for example, is presently trading at 1.5050 and is on the rise. If the price reaches 1.5060, you believe it will continue in this path.

To play these believe, you can do one of the following:

Watch carefully and purchase at market when it hits 1.5060 points or

Fix a stop entry order at 1.5060 points.

Stop Loss Order

An order to close out if the market price hits a certain level, which could be a profit or a loss.

A stop loss order is a sort of order that is tied to a trade and is used to avoid further losses if the price moves against you.

It's a sell STOP order if you're in a long position.

It's a purchase STOP order if you're in a short position.

REMEMBER THIS ORDER TYPE

Until the trade is liquidated or you cancel the stop loss order, it stays in effect.

You went long (bought) EUR/USD at 1.2230, for example. You place a stop loss order at 1.2200 to limit your maximum loss.

This implies that if you were completely wrong and EUR/USD fell to 1.2200 instead of rising, your trading platform would automatically place a sell order at the best available price of 1.2200 and close your position for a 30-pip loss.

Stop losses are highly handy if you don't want to spend the entire day worrying about losing all of your money.

To ensure that you don't miss your basket weaving class or elephant polo game, simply place a stop loss order on any open positions.

Trailing Stop

A stop loss order is one that is constantly tied to an open position and moves automatically once profit reaches or exceeds a certain level.

A trailing stop is a sort of stop loss order that moves together with the price of the trade.

Let's say you've opted to sell USD/JPY at 90.80 with a 20-pip trailing stop.

This means that your stop loss was set at 91.00 at the outset. If the price drops to 90.60, your trailing stop will be moved to 90.80. (Or breakeven).

But keep in mind that your stop will remain at the new price level. If the market rises against you, it will not spread.

Returning to the example, with a trailing stop of 20 pips, if USD/JPY reaches 90.40, your stop will be moved to 90.60. (or lock in 20 pips profit).

As long as the price does not move 20 pips against you, your trade will remain open.

When the market price reaches your trailing stop, a market order will be sent to close your trade at the best available price, and your position will be closed.

Limit Orders Vs Stop Orders

Limit orders and stop orders are commonly confused by new traders since they both set a price.

Traders can tell their brokers at what price they're willing to trade in the future using both forms of orders.

The distinction is in the purpose of the set price.

When the market price approaches or passes a set stop price, a stop order is activated.

For example, if the EUR/USD currency pair is trading at 1.1000, you have a buy stop entry order at 1.1010. Your order will be fulfilled once the price hits 1.1010.

However, this does not imply that your buy order was filled at 1.1010. You might have been filled at 1.1011 if the market was moving quickly.

In other words, your order may be filled at the stop price, a price lower than the stop price, or a price higher than the stop price. It all hinges on how much the market price fluctuates when it hits the stop price.

Consider a stop price to be a criterion for your order to execute. The price at which your order will be filled is determined by market conditions.

A limit order can only be filled if the price is equal to or better than the limit price.

You have a limit entry order to purchase at 1.1009 if EUR/USD is trading at 1.1000. If you can't get filled at 1.1009 or greater, your order won't be filled.

Consider a limit price as follows:

Consider a stop price to be a criterion for your order to execute. The price at which your order will be filled is determined by market conditions.

A limit order can only be filled if the price is equal to or better than the limit price.

You have a limit entry order to purchase at 1.1009 if EUR/USD is trading at 1.1000. If you can't get filled at 1.1009 or greater, your order won't be filled.

A limit price might be thought of as a price guarantee. Setting a limit order ensures that your order will only be executed at the price you specify (or better).

The caveat is that the market price may never reach your limit price, which means your order will never be fulfilled.

EUR/USD may only fall to 1.1009 before surging in the prior case. Because you were attempting to initiate a long position at a lower price, your order was never executed, even though you wanted to go long EUR/USD. You stand by and watch the EUR/USD soar without doing anything.

When a limit order is used instead of a market order, this is the tradeoff.

Freaky Forex Orders

"Can I get a grand extra hot soy with extra foam, an 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 it in a Venti cup with more whipped cream and caramel and chocolate sauce drizzled on top?"

Oops, I made a mistake with the strange order.

Good till Cancelled (GTC)

Until you cancel a GTC order, it stays active in the market. Your broker will not be able to cancel the order at any point in the future. As a result, it is your responsibility to recall that the order has been placed.

Good for the Day (GFD)

Until the end of the trading day, a GFD order is active in the market.

Because foreign exchange is a 24-hour market, this normally means 5:00 p.m. EST, when US markets close, but you should double-check with your broker.

The orders GFC and GTC are referred to as "time in force" orders.

The "time in force," or TIF, of an order specifies the amount of time it will continue to work before being cancelled. Consider it a unique instruction used when placing a trade to indicate the length of time an order will be active before being executed or expiring.

One-Cancels-the-Other (OCO)

An OCO order is a pair of entry and/or stop loss orders combined into one.

Two orders are placed, one above the current price and the other below it. The other order is cancelled when one of the orders is completed.

You can place two orders at the same time using an OCO order. However, only one of the two will be put to death.

Let's say the EUR/USD rate is 1.2040. If the price falls below 1.1985, you should either buy at 1.2095 above the resistance level in expectation of a breakout or sell.

Your buy order will be triggered if 1.2095 is reached, and your sell order will be automatically cancelled if 1.1985 is hit.

One-Triggers-The-Other (OTO)

An OTO differs from an OCO in that it only places orders when the parent order is activated.

When you wish to establish profit taking and stop loss levels ahead of time, even before you enter a trade, you use an OTO order.

USD/CHF, for example, is now trading at 1.2000. You believe it will revert and head lower after it reaches 1.2100, but only to 1.1900.

The issue is that you'll be gone for a week because you've been invited to compete in a basket weaving competition at the summit of Mt. Fuji, where there is no internet connectivity.

To catch the move while you're away, establish a sell limit at 1.2000, a similar purchase limit at 1.1900, and a stop-loss at 1.2100 just in case.

The buy limit and stop-loss orders will be put as an OTO only if your initial sell order at 1.2000 is triggered.

Conditional orders include OTO and OTC orders. An order that incorporates one or more defined conditions is known as a conditional order.

The Last Word

Most traders just require the fundamental forex order types (market, limit entry, stop entry, stop loss, and trailing stop).

The following pending orders can be utilized to open a position:

To initiate a long position at a price higher than the current price, use a "buy stop."

To begin a short position at a price lower than the current price, use a "Most traders just require the fundamental forex order types (market, limit entry, stop entry, stop loss, and trailing stop).

The following pending orders can be utilized to open a position:

  •     To initiate a long position at a price higher than the current price, use a "buy stop."
  •     To begin a short position at a price lower than the current price, use a "sell stop."
  •      To establish a long position at a price lower than the current price, use the "Buy Limit" option.
  •     To establish a short position at a price higher than the current price, use "Sell Limit."

Here's a cheat sheet (the blue dot represents the current price)

Don't get sophisticated and develop a trading system that requires a huge number of forex orders positioned in the market at all times unless you are a seasoned trader (don't worry, with practice and time, you will be).

When employing a limit order instead of a market order, there is always a tradeoff.

If you want to buy "right now," for example, you'll have to pay the higher ask price. This is referred to as a "market order" since it will trade at the current market price.

You'll need to utilize a "limit order" if you want to save money.

The issue with patience is that the price may continue to rise, and your limit order may never be completed.

You must either enter a market order or change your limit order if you still want to trade. As a result, you'll have to pay (even) more than the original asking price.

First and foremost, focus on the fundamentals.

Before you execute a trade, be sure you understand and are familiar with your broker's order entry method.

Always verify with your broker for precise order information and to determine if there are any rollover costs if a position is held for more than one day.

The ideal method is to keep your ordering rules simple.

Moreover, DO NOT trade with real money until you are completely comfortable with the trading platform and order entry system you are using. Trades that aren't correct are more common than you might believe!

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