Types of Forex Orders
Types of Forex Orders Explained for Beginners
Imagine you’re shopping online. Before you buy something, you decide on the price you’re willing to pay, right? In the world of forex trading (which is just buying and selling currencies), you can also decide how and when you want to buy or sell. These decisions are called “orders”.
There are a few ways to place these orders:
- Market Order:
- Definition: An instruction to buy or sell at the best available price immediately.
- Example: If EUR/USD is quoted with a selling price (ask) of 1.1005 and a buying price (bid) of 1.1000, a market order to buy would execute at 1.1005 and a market order to sell would execute at 1.1000.
- Limit Order (Pending Order):
- Definition: An order to buy or sell at a specific price or better.
- Example: If you believe EUR/USD will rise, but only want to buy if it drops to 1.0950 first, you’d set a “Buy Limit” at that price. If the market reaches 1.0950, your order will activate.
- Stop Order (or Stop Entry Order):
- Definition: An order to buy or sell once a specific stop price is reached or passed.
- Example: If EUR/USD is at 1.1000 and you believe it will rise after it hits 1.1050, you can place a “Buy Stop” order at 1.1050. If the price hits or surpasses 1.1050, your order becomes a market order.
- Stop Loss Order:
- Definition: An order linked to a trade that sells a currency pair when it reaches a certain price to prevent further losses.
- Example: If you’re long (bought) EUR/USD at 1.1000, but want to limit potential losses, you might set a stop loss at 1.0950. If the price drops to this level, your position will automatically close, capping your loss.
- Trailing Stop:
- Definition: A dynamic stop loss order that moves with the market price.
- Example: You buy EUR/USD at 1.1000 with a trailing stop of 10 pips. If the price rises to 1.1020, your stop loss would automatically shift up to 1.1010. If the market then drops to 1.1010, your position would close, locking in a profit of 10 pips.
- Good ‘Till Cancelled (GTC):
- Definition: An order that remains in the market until you decide to cancel it.
- Example: If you place a Buy Limit for EUR/USD at 1.0900 and it doesn’t hit that day, the order will stay active until it either reaches that price or you cancel it.
- Good for the Day (GFD):
- Definition: An order that is active until the end of the trading day.
- Example: If you place a GFD order at 10 am and the conditions aren’t met by market close, the order will be canceled.
- One-Cancels-the-Other (OCO):
- Definition: A setup where two orders are placed; if one is executed, the other is canceled.
- Example: You place an OCO with a Buy Limit on EUR/USD at 1.0950 and a Sell Limit at 1.1050. If the price drops to 1.0950 and your buy order executes, the sell order at 1.1050 is automatically canceled.
- One-Triggers-the-Other (OTO):
- Definition: An order where one primary order, when executed, triggers another secondary order.
- Example: You might set a Buy Stop on EUR/USD at 1.1050. If that order executes, an OTO could then place a Stop Loss at 1.1030 and a Take Profit at 1.1080.
Remember, the goal is to decide in advance how you want to buy or sell to make the most money and limit losses. Just like when shopping, you want the best deal and to avoid overspending.