Discussion Topic: Forex Order Types
I hope that you have definitely heard about different types of forex orders, but do you know how many types of orders you can place while trading forex? Today we are going to discuss all the forex order types you can place while trading in the currency market.
You should ensure that you know all of the forex order types your broker accepts. Different brokers accept different types of forex orders. There are some basic order types that all brokers accept and some others less common order types that sound weird to them.
Here we are trying our best to provide information and understanding on all types of orders you can place in the forex market.
Forex Order Types - Explaining Different Types of Forex Orders
There are quite a few order types that can be placed in the forex market. Those are as follows:
A Market Order in forex trading is an order to buy or sell at the best available market price.
For example, suppose the bid price for EUR/USD is currently going at 1.1285 and the ask price is going at 1.1287.
If you place a market order to buy EUR/USD, then it would be sold to you at the current ask price of 1.1287.
You would click on the buy button; your trading platform would instantly execute a buy order at that exact price.
It’s also sometimes called as 1-click ordering.
Limit Entry Order:
A Limit Entry Order is a type of order that is placed to either buy below the market or sell above the market at a certain price.
For example, suppose the EUR/USD pair is currently trading at 1.1952, and you want to go long (buy) when the price drops to 1.1900.
In that case, you have two options to achieve your requirement:
Either you can sit in front of your trading console and wait for it to hit 1.1900 (at which point you have to place a buy market order).
Or as an alternative, you can set a buy limit order at 1.1900 (Now you can go where ever you may wish, your buy order would be automatically executed if the price hits 1.1900).
In the same way, if you want to go short (sell) the same EUR/USD pair at 1.2000, you can place a sell limit order at 1.2000 so that the system automatically executes your sell order once the price reaches 1.2000.
You can use this type of Limit Entry Order (Buy Limit Order or Sell Limit Order) if you assume that the price will reverse upon hitting the price you specified!
Stop Entry Order:
A Stop Entry Order is an order placed to buy above the market or sell below the market at a certain price.
For example, suppose the GBP/USD pair is currently trading at 1.4450 and is heading upward. And you think that the price will continue in the upward direction if it hits 1.4500. So you want to buy the GBP/USD pair only if it hits the price of 1.4500.
Here you have two options to do this.
The first option is to sit in front of the trading terminal and buy the pair when the price reaches 1.4500. And the second option is to set a buy stop order at 1.4500. In the second option, the system would automatically execute the buy order if the price reaches 1.4500.
In the same way, if you think that the price will continue to drop if the price hits 1.4400, then you can place a sell stop order at a price of 1.4400. In that case, if the price hits 1.4400 then a sell order is automatically placed by the trading system on behalf of you.
You can effectively use the stop entry orders (buy stop entry order or sell stop entry order) when you feel that price will move in one direction if it hits a certain price!
Stop Loss Order:
A Stop Loss Order is a type of order that is placed in order to prevent additional losses in a trade if the price goes against you. Stop loss orders are always placed in the opposite direction of your current trade.
If you are in a long position (buy position), you need to place a sell STOP order.
If you are in a short position (sell position), it is to be a buy STOP order.
Things to remember about stop loss order:
- A stop loss order is always attached to an existing position (buy or sell potion).
- A stop loss order remains valid until the attached position is liquidated (either hit take profit or hit stop loss) or you cancel the stop loss order.
For example, suppose you went long (buy) GBP/USD at 1.4200 with a take profit of 1.4500. And to limit your maximum loss, you set a stop-loss order at 1.4150.
This means if your assumption went wrong and GBP/USD drops to 1.4150 instead of moving up, your trading platform would automatically execute a sell order at 1.4150 the best available price and close out your buy position for a 50-pip loss.
In the same way you can also place a stop loss order for any short position (sell position).
Stop loss order is extremely useful if you don’t want to sit in front of your trading terminal all day worrying that you will lose all your account balance. Alternatively, you can set a stop loss order on any open position and be worry free.
Trailing Stop Order or Trailing Stop Loss Order:
A trailing stop order or trailing stop loss order is a type of stop loss order attached to a trade that moves as price fluctuates.
Let’s say that you’ve decided to long (buy) USD/CAD at 1.2320, with a trailing stop of 20 pips.
This means that originally, your stop loss would be at 1.2300, it will move up 20 pips for every 20 pips upward movement of the currency exchange rate. If the price goes up and hits 1.2340, your trailing stop loss would also move up to 1.2320 (or breakeven).
But just remember though, that trailing stop loss doesn't move backwards. Your stop will STAY at this new price level even if the market starts to fall.
Returning to the example, with a trailing stop of 20 pips, if USD/CAD hits 1.2360, then your stop would move to 1.2340 (or lock in 20 pips guaranteed profit).
Your trade will remain open as long as the exchange price does not move against you by 20 pips at any point of trade and will follow your trade for every 20 pips of movement in your trade direction.
Once the market starts to reverse and hits your trailing stop price, a market order would be placed to close your position at the best available price.
Uncommon & Conditional Forex Orders Types:
Till now we have learned about most common types of forex orders that are supported by the majority of the brokers. Now we would learn about some uncommon and conditional forex order types that may or may not be offered to you by your broker (by default). Still, these forex orders types are worth to know, in case your broker supports it:
Good Till Cancelled (GTC) Order:
A Good Till Cancelled (GTC) orders are those orders that remain active in the market until you decide to cancel them. Your broker would never cancel the GTC order at any time (Till you have account balance remaining). Therefore, it is your responsibility to remember and track those scheduled orders and cancel them if you don't need them anymore.
Good for the Day (GFD) Order:
A Good For the Day (GFD) order remains active in the market until the end of the trading day.
Because foreign exchange market is a 24-hour market, this usually means 10:00 pm GMT since that’s the time U.S. markets close (New York Session ends).
But we would recommend you to double check with your broker to know how long they support your GFD orders to remain open.
One-Cancels-the-Other (OCO) Order:
A One-Cancels-the-Other (OCO) order is a combination of two entry and/or stop loss orders.
If you know the OCO orders used in stock trading, it's little different here in forex trading, so don't get confused.
Here in OCO orders, two orders with price and duration variables are placed above and below the current price. When one of the orders is executed the other order is automatically canceled by the system.
Let’s say the current market price of USD/JPY is 110.540. And you want to either buy at 110.700 over the resistance level anticipating a breakout or enter into a selling position if the price falls below 110.300. To do that, you have to place an OCO order specifying both of the criteria.
Now the catch is that, if the exchange price reaches 110.700 your buy order will be triggered and sell order would be canceled. Alternatively, if the exchange price drops to 110.300, the sell order will be triggered and the buy order would get automatically canceled.
One-Triggers-the-Other (OTO) Order:
In Forex Trading, a One-Triggers-the-Other (OTO) order is the opposite of the OCO, because it only puts on orders when the parent order is triggered. If you are familiar with Stock Order Types, then this is similar to the Bracket Order.
You set an OTO order when you plan to set the "take profit" and "stop loss" levels prior to getting into a trade.
For example, suppose USD/CHF is currently trading at 1.2150. And you think that once the price hits 1.2200, it will reverse and head downwards but only up to 1.2050.
So how will you place such a trade? The answer lies in the OTO order.
In order to catch that move even if you are not at the front of the trading platform, you set up a single OTO order to set a sell limit at 1.2200 and at the same time, place a related buy limit at 1.2050, and for safety place a stop-loss at 1.2250.
Being an OTO order, both the buy limit order and the stop-loss orders will only be placed if your initial sell order at 1.2200 gets triggered.
The Conclusion & Final Thoughts:
The basic forex order types such as market order, limit entry order, stop entry order, stop-loss order, and trailing stop-loss orders are most common types of forex orders used by most traders.
Here’s a quick fact sheet (current market rate is shown as the purple dot):
Make sure that you fully understand and are comfortable with your broker’s ordering system (trading terminal) before entering into a trade.
Also, always enquire your broker for specific order information to see if any rollover fees or swap charges will be applied if a position is held longer than one trading day.
[See Also: What is Swap Fee in Forex Trading? How it Works?]
The best strategy in forex trading is to always keep your ordering rules simple.
And most importantly, DO NOT trade with real money until you feel extremely comfortable with the trading platform and order entry system you are using. Erroneous trades can put you in a nightmare and are more common than you can think of.
Hope you have enjoyed the above article on the Forex order types. Be with us to explore forex trading, stocks trading, and other money-making opportunities.
Leave us some comments if you have any questions about different types of forex orders. Also, let us know which order type you use most frequently.