Types of forex orders: all you need to know

Types of forex orders: all you need to know

An order is required to execute a trade in the foreign currency market. It’s the process by which you give your broker the order to make a trade. But getting in touch with your broker over the phone is a thing of the past. You are now fully responsible for all aspects of your work, including the execution of market orders in the foreign exchange market. Indeed, you have entered the contemporary era.

You should be well-versed in the various forex order kinds since you are free to accomplish anything on your own. You will learn that in this blog.

What is a forex order?

In foreign exchange, a trader can tell their broker to open a deal on their behalf by placing an order through the trading platform. The order typically includes the following elements: the currency pair you wish to trade, the size of your position, and the price at which you would like to initiate the trade. The trader’s desired exit price can likewise be included in an order.

In order to execute a trade with a forex broker, these instructions are crucial. Additionally, orders are available to assist forex traders with trade management beyond just executing trades.

Below, we’ll go over the different order kinds and demonstrate how they can be put to use in real-world scenarios.

Types of Forex Order

When managing and executing trades, forex traders rely on nine main types of orders. There are a few standard order types that every broker will take, albeit they may differ from one another.

There are three types of forex orders

  • Market Order:A market order is one that needs to be filled at the precise moment and price the order was placed. This encompasses both purchase and sale orders.
  • Pending Orders: “Pending orders” are those that you have already specified a price for and will be executed at a later date. Orders such as buy stop, sell limit, purchase, and sell stop are examples of these.
  • Trade Exit Orders: You can exit transactions with these orders. One of these is placing a stop-loss order and a profit order.

Each of these order kinds will be examined in more detail below.

What is Market Order?

One way to buy or sell is via a market order, which is based on the current market price. This is the simplest way to get your order executed in the market instantly. As soon as you press the “buy” or “sell” button, your order is promptly fulfilled.

Imagine for a second that the Euro/United States Dollar currency pair has a bid of 1.1920 and an ask of 1.1922. A purchase of EUR/USD at the current market price would be made at the 1.1922 level. In addition, 11.1920 is the market price at which you would sell EUR/USD. Ask and bid prices in FX work just like that.

The discrepancy between the price you choose and the one actually applied by your trading platform can be substantial, depending on the state of the Forex market. Slippage describes this phenomenon.

A sell order functions similarly. You buy in at the market price right now.

What is a Pending Order?

If you would like your broker to execute a pending order when the price reaches a certain level, you can specify that price in advance. They are referred to as pending orders for that reason. Your broker will approve the order once you execute it, but you will have to wait a little while before you can enter a trade. On the other hand, your pending order will be filled the second the price of your currency pair hits the level you selected.

A pending order can be useful for four different situations.

  • Once the price reaches a specific point, you would like to make a purchase.
  • When the price hits a certain level, you’d like to sell.

The term for the first two of those is a stop order.

  • When the price drops below a specific threshold, you wish to make a purchase.
  • Assuming the price reaches your target, you intend to sell.

Limit orders are the last two. And there’s a specific kind of order for each of those possibilities:

Buy Limit Order

To direct your broker to open a long position in the event that the price of your currency pair falls to a specific level, you can use a buy-limit order. This order is based on a simple principle. When you acquire something, you usually anticipate that its price will go up. You expect a short-lived price decrease, nevertheless, right before the price goes up. This is where your buy-limit order is received. You can take advantage of the discounted price.

Think about the EURUSD pair for a moment. The price right now is 1.1200. There is a support level at 1.1100, and the price is now dropping towards it. You anticipate a return to 1.300 as soon as the price reaches this support level. In this case, a buy-limit order is the way to go. When the price falls to your limit price of 1.1100, this buy-limit order will enter the trade for you.

The purpose of a buy-limit order is to instruct a broker to purchase a given currency pair at a certain price point in the future.

Sell Limit Order

When the price of a currency pair increases over a certain level, you can instruct your broker to sell it to you by placing a sell-stop order. When selling a currency pair, you should aim for a price decline. However, you would like to seize the transaction at that higher price level before the price drops lower. This level could serve as resistance. Therein is the meat of your sell limit order.

In keeping with our previous example, the Euro/USD exchange rate is currently growing at a rate of 1.1100. You anticipate, nevertheless, that the gradual increase will be transitory, and that a precipitous decline will follow. And therefore, you have placed a sell limit order at 1.1200. So, before the broker fulfills your order, you anticipate that the price will rise to the limit price of 1.1200.

Buy Stop Order

When the value of a currency pair reaches a specific level, you can tell your broker to create a position on your behalf by placing a buy-stop order.

Take a currency pair as an example, where the price is now going up. You do, however, foresee potential roadblocks at varying price points above the current one, which might trigger a price reversal and subsequent decline. But if it manages to break through those difficult pricing points, you may anticipate further price increases. A buy-stop order is useful in these kinds of situations.

Consider instead that the USDJPY rate is 150.35 and going up. It seems like there might be a reason for it to go up to 170.25, but there’s a snag.

At 160.43, there is a significant level of resistance. However, you think USDJPY will easily reach the 170.25 goal if the price can break past this resistance level. Your Buy Stop order is so slightly above the level of resistance. You can then place a buy trade when the price reaches that level and ride the USDJPY pair until it reaches your target.

Sell Stop Order

You can tell your broker to sell a currency pair at a specified price point by placing a sell stop order. A sale stop is based on the same principle as a purchase stop, except that it moves in the other way.

As an example, you might have the view that a currency pair’s price will keep falling. But first, it will likely encounter a temporary obstruction before continuing its descent. Here, you’ll want to put in a sell-stop order.

You can also read: What is CFD trading and how They Work?

Trade Exit Order

There is a small difference between these orders and the ones listed above. Reason being, those kinds are actually trade entry orders. In contrast, you can get out of a transaction using an exit order.

In this case, there are three main kinds of orders:

  • Decide to take a profit.
  • Order to stop loss.
  • Order with a trailing stop.

Take Profit Order

With a take-profit order, you can exit profitable deals. It’s a signal to your broker that you want to get out of the transaction when the price reaches a specific profit target.

Perhaps you’re wondering why you should get out of a winning deal. Simply put, the odds will never be in your favor when it comes to pricing. The foreign exchange market operates in that manner. Prices are constantly going up and down. Also, before the market turns against you, you want to get out of your trades as cheaply as possible while still protecting your winnings.

Stop Loss Order

With a stop-loss order, you can exit losing transactions quickly. This is your way of requesting that your broker assist you in limiting losses up to a specific price in the event that the market goes against your predicted direction. Otherwise, you run the risk of losing everything if the trade goes south.

At 1.1950, you “went long,” or bought the EUR/USD. You can cap your losses at 1.1920 by placing a stop-loss order. You would lose 30 pip if your trading platform closed your trade automatically if the EUR/USD pair fell to 1.1920 instead of rising.

Keep in mind that even a little loss can have a greater impact on your forex trading results than a large loss. If you want to limit your losses when trading forex, you should use stop-loss orders. Roll with the punches and go on. When you don’t establish a stop loss, some brokers won’t even let you keep a trade open.

Trailing Stop Order

When you’re making money in a trade, you might think the price will keep rising. However, you are clueless as to where it might turn around. In this case, a trailing stop order could be useful.

Using a trailing stop order, you can tell your broker to maintain a specific distance behind the price if it continues to move in your desired direction (up or down). If the price action remains favorable, the following stop order will hold the distance and continue to move in the same direction. If you see a price reversal, though, your trailing stop will stay in place until the price reaches it.

Let’s pretend you’re holding a short position in the EUR/USD. You have already made a profit while the price is declining. But you want to make the most money possible, and you have no idea how much longer the price will fall before turning around.

A trailing stop order allows you to follow the price movement by a predetermined amount of time, for example, 5 pips. In this manner, your trailing stop order will be set 5 pip higher than the current price. With a trailing stop set 5 pips above the current price, the price will continue to decline indefinitely. You should be aware that your trailing stop will not move in tandem with the price reversal. Instead, it will patiently wait for the market to achieve its position before closing your trade.

Conclusion

Whether you lean more toward fundamental or technical analysis, or a combination of the two, you must be familiar with the various forex orders and how to use them in your trading approach. You can’t control your risk in forex without these fundamental tools. They are the center of your trading success, not your trading tactics alone.

It becomes simpler with practice, so there’s no need to fret if things appear complicated. You will be able to blindly set your own limit orders on your trading platform within a couple of weeks!

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