The term order or orders refers to how to enter or exit a position during a forex transaction.
Here we discuss the various types of orders commonly used in the forex market.
Make sure the type of order your broker will accept.
Each broker accepts different types of currency orders.
There are several types of orders that are called by some brokers with terms that are somewhat foreign to the ear.
Market Order
A market order is an order to buy or sell at the best price available in the market.
For example, the bid price for EUR/USD is currently at 1.2140 and the ask price is at 1.2142.
If you want to buy EUR/USD, the market will sell you at an ask price of 1.2142.
You will click buy and the trading platform will immediately place a buy order at the specified price.
If you've ever shopped online at Amazon.com, it's not much different from using one-click ordering. You love the price and with one click things change hands instantly.
It's just that in forex transactions you will buy or sell a currency pair.
Limit Entry Order
A limit entry order is an order to buy below the market price or sell above the market price.
For example, EUR/USD is currently trading at 1.2050. Sell order if the price has touched 1.2070.
You can sit in front of the monitor and wait until it reaches 1.2070.
Or by setting a sell order limit at 1.2070 and then leaving market-watch quietly.
The platform will automatically place a sell order at the best available price.
This type of entry is possible if you believe the price will reverse to reach the fixing price!
Stop Entry Order
A stop entry order is an order to buy above the market price or sell below the market price.
For example, GBP/USD is currently trading at 1.5050 and the price is heading upwards. You believe the price will continue in this direction and touch 1.5060.
You can do any of the following to play this belief:
Sit in front of the market-watch and buy when it hits 1.5060 OR set a stop entry at 1.5060.
This type of entry can be made when you feel the price will move in one direction!
Stop Loss Order
A stop loss order is an order with the aim of preventing further losses if the trend goes against your expectations.
If the order is in a buy position, do a sell STOP.
If the order is in a sell position, do a buy STOP.
REMEMBER THIS TYPE OF ORDER CAREFULLY.
The stop loss order remains in effect until the position is liquidated or the order is cancelled.
For example, you go long (buy) EUR/USD at 1.2230. To limit the maximum loss set a stop-loss order at 1.2200.
This means that if the EUR/USD price drops to 1.2200 instead of rising, the platform will automatically execute a sell order at 1.2200 and close the position with a 30 pip loss (eww!).
Stop loss is very useful if you don't want to sit in front of a monitor all day and fear that you will lose all your money.
Stop loss orders can be set easily on any open position.
Trailing Stop
A trailing stop is a type of stop loss order with a trade running when the price fluctuates.
Let's say you've decided to make USD/JPY at 90.80, with a trailing stop of 20 pips.
This means that the initial stop loss is set at 91.00. if the price drops to 90.60, the trailing stop order will only drop at 90.80 (break even point).
Remember, that the stop will only STAY at the new level and will not widen even if the market moves higher.
Going back to the example, with a trailing stop of 20 pips, if USD/JPY reaches 90.40, then the stop loss will move to 90.60 (locking in 20 pips profit).
The transaction will continue as long as the price doesn't move in the opposite direction by 20 pips.
Once the market price hits the trailing stop price, the market order will close your position at the best price and your position will be closed.
Other Order Types
Good 'till canceled (GTC)
A GTC order will remain active in the market until you decide to cancel it. The broker will not cancel the order arbitrarily. Then it is your responsibility to remember if there is a scheduled order.
Good for the day (GFD)
A GFD order will remain active in the market until the end of the trading day.
Since the forex market is 24 hours, usually at 5:00 pm EST because it is the close of the US market, but we recommend double checking with your broker.
One-cancels-other (OCO)
An OCO order is a combination of two entry and/or stop loss orders.
Two orders with variable price and duration are placed above and below the current price. When one order is executed, another order is automatically cancelled.
Let's say the price of EUR/USD is 1.2040. You would like to buy at 1.2095 above the resistance level in anticipation of a breakout or initiate a short position if the price drops 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 canceled automatically.
One-triggers-other (OTO)
An OTO order is the opposite of an OCO, as it only places an order when the initial order is triggered.
You place an OTO order when you want to set the level of taking profit and stop loss early, even before you make a trade.
For example, USD/CHF was currently trading at 1.2000. You believe that after reaching 1.2100 it will reverse and point downwards but only reach 1.1900.
The problem is that you want to go for a week to a place where there is no internet connection.
To catch the price movement on the way, you set a sell limit at 1.2000 and at the same time set a buy limit at 1.1900, and just in case set a stop-loss at 1.2100.
Both the buy limit and the stop-loss order will only be realized if the initial sell order is triggered at the price of 1.2000.
Conclusion.
Common types of “orders” such as: market, limit entry, stop-entry, stop loss and trailing stop are what most traders need.
Here is an example of an order strategy (the blue dot shows the current price)
Unless you are a veteran trader (don't worry, practice and time will mature your trading), don't like designing trading systems that require a large number of orders without a sufficient knowledge base.
Stick with the basics first.
Make sure you fully understand and are comfortable with the specified entry system.
Always first confirm with the broker for certain information or swap fees charged if a position is held for more than one day.
Keeping orders simple is the best strategy.
DO NOT trade real money until you are comfortable doing so with the trading platform you have chosen or with the entry system you have defined. Otherwise mistakes will happen often!
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forex