An order is a request submitted through your broker’s trading platform to initiate or close a transaction if the instructions you provide are met.
The term “order” basically relates to how you will enter or exit a trade. In this section, we will go through the various sorts of orders that can be put in the forex market.
Check to see what kinds of orders your broker accepts.
Different forex brokers accept several forms of FX orders.
There are several basic order types that all brokers offer, as well as those that sound strange.
Orders are divided into two categories:
1. Market order: an order that is quickly executed against a price set by your broker.
2. Pending order: an order that will be performed later at the price you set.
Here’s a short “map” of the various order types within each bucket.
A market order is a buy or sell order at the best available price.
For instance, the bid price for EUR/USD is currently 1.2140, while the ask price is 1.2142.
If you wanted to buy EUR/USD at market, it would be offered to you for 1.2142.
When you click purchase, your trading platform will immediately execute a buy order at that (hopefully) exact price.
Please bear in mind that the price you set and the actual price that is executed (or “filled”) on your trading platform may fluctuate depending on market conditions.
A limit order is an order placed at a specific price to purchase below the market or sell above the market. This is a buy or sell order placed when the market hits the “limit price.”
You set a “Buy Limit” order to purchase at or below a predetermined price.
You set a “Sell Limit” order to sell at or above a certain price.
The order is triggered and executed at the “limit price” when the market reaches it (or better).
The blue dot in the figure on the right represents the current price.
Take note of how the green line is lower than the current pricing. If you set a BUY limit order here, the price must first fall here in order for it to be triggered.
As you can see, a limit order can only be executed when the price moves in your favor. Take note of how the red line is elevated above the current price. If you place a SELL limit order here, the price must first rise in order for it to be triggered.
EUR/USD, for example, is currently trading at 1.2050. If the price reaches 1.2070, you want to go short. You can either sit in front of your monitor and wait for it to reach 1.2070, or you can do both (at which point you would click a sell market order).
Alternatively, you might place a sell limit order at 1.2070. If the price rises to 1.2070, your trading platform will execute a sell order at the best available price instantly. This form of entry order is used when you feel the price will reverse after it reaches the price you selected!
A limit order to BUY at a price lower than the current market price will be executed at the specified price or less. A limit order to SELL at a price higher than the current market price will be executed at that price or higher.
Stop Entry Order
A stop order prevents an order from being executed until the price reaches the stop price. A stop order is used 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. A stop entry order is an order to buy above or sell below the market at a specific price.
A “Buy Stop” order is placed to buy at a price higher than the market price, and it is triggered when the market price touches or passes through the Buy Stop price.
You set a “Sell Stop” order to sell at a specific price.
The blue dot represents the current price.
Take note of how the green line is elevated above the present price. If you place a BUY stop order here, the current price must continue to rise in order for it to be triggered. Take note of how the red line is lower than the current pricing.
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, a stop order can only be executed if the price moves against you.
GBP/USD, for example, is currently trading at 1.5050 and is trending upward. If the price reaches 1.5060, you believe it will continue in this path.
You can play this belief by doing one of the following:
Sit in front of your computer and buy when the price reaches 1.5060 OR place a stop entry order at 1.5060.
Stop Loss Oder
An order to close out if the market price hits a certain level, which could result in a loss or profit.
A stop loss order is a sort of order that is tied to a trade in order to prevent extra losses if the price moves against you.
It is a sell STOP order if you are in a long position.
It is a buy STOP order if you are in a short position.
REMEMBER THIS TYPE OF ORDER
A stop loss order remains in effect until the position is liquidated or the order is canceled.
For example, suppose you bought EUR/USD at 1.2230. 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 will automatically execute a sell order at the best available price of 1.2200 and close out your position for a 30-pip loss.
Stop losses are particularly handy if you don’t want to stay in front of your computer all day worrying that you’ll lose your entire investment. Simply place a stop loss order on any open positions.
A stop loss order that is constantly tied to an open position and moves automatically when profit equals or exceeds a level you designate. A trailing stop is a sort of stop loss order that moves with the price of a trade.
Assume you’ve opted to short USD/JPY at 90.80 with a 20-pip trailing stop. This means that your initial stop loss was set at 91.00. If the price falls to 90.60, your trailing stop will be moved to 90.80. (or breakeven).
But keep in mind that your stop will STAY AT THIS 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 would be moved to 90.60. (or lock in 20 pips profit).
Your trade will remain open as long as the price does not move 20 pips against you. When the market price reaches your trailing stop price, a market order is sent to close your trade at the best available price, and your position is closed.
Limit Orders vs Stop Orders
Limit orders and stop orders are frequently confused by new traders because both specify a price. Both sorts of orders enable traders to inform their brokers of the price at which they are willing to trade in the future.
The distinction is found in the purpose of the given price.
When the market price approaches or passes a set stop price, a stop order is activated.
If the EUR/USD is trading at 1.1000, you have a buy-stop entry order at 1.1010. Your order will be executed when the price reaches 1.1010. However, this does not necessarily imply that your buy order was filled at 1.1010. If the market was moving quickly, you may have been filled at 1.1011. Essentially, your order can be completed 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 simply a threshold for your order to execute. The exact price at which your order will be filled is determined by market conditions.
A limit order can only be executed if the price is equal to or more than the limit price. If the EUR/USD is now trading at 1.1000, you have a limit entry order to buy at 1.1009. Your order will not be fulfilled unless it is filled at 1.1009 or above. Consider a limit price as a price guarantee. Setting a limit order ensures that your order is only executed at the price you specify (or better).
The catch is that the market price may never reach your limit price, resulting in your order being canceled. In the previous case, the EUR/USD could only fall to 1.1009 before skyrocketing. So, despite the fact that you wanted to go long EUR/USD, your order was never executed because you were attempting to initiate a long position at a lower price. You sit back and watch the EUR/USD rise without doing anything.
Finally, most traders only need the fundamental forex order types (market, limit entry, stop entry, stop loss, and trailing stop).
To open a position, use one of the following pending orders:
“Buy stop” to begin a long position at a higher price than the current price.
“Sell stop” to start a short trade at a lower price than the current price.
“Buy Limit” to start a long position at a lower price than the current price.
“Sell Limit” to initiate a short trade at a price greater than the current price.
Don’t go sophisticated and develop a trading method that requires a huge number of forex orders positioned in the market at all times unless you are an experienced trader (don’t worry, with practice and time you will be). Begin with the fundamentals.
Before you execute a trade, be sure you completely understand and are familiar with your broker’s order entry method.
Also, always verify with your broker for specific order information and to see 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.
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