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Order Types

Sep 11, 2018

Market order

A market order is an order to buy or sell at the best available price.

For example, the bid price for EUR/USD is currently at 1.2140 and the ask price is at 1.2142.

If you wanted to buy EUR/USD at market, then it would be sold to you at the ask price of 1.2142.

You would click buy and your trading platform would instantly execute a buy order at that exact price.

If you ever shop on Amazon.com, it’s kinda like using their 1-Click ordering. You like the current price, you click once and it’s yours!

The only difference is you are buying or selling one currency against another currency.

 

Limit Entry Order

A limit entry is an order placed to either buy below the market or sell above the market at a certain price.

For example, EUR/USD is currently trading at 1.2050. You want to go short if the price reaches 1.2070.

You can either sit in front of your monitor and wait for it to hit 1.2070 (at which point you would click a sell market order).

Or you can set a sell limit order at 1.2070 (then you could walk away from your computer to attend your ballroom dancing class).

If the price goes up to 1.2070, your trading platform will automatically execute a sell order at the best available price.

You use this type of entry order when you believe 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, GBP/USD is currently trading at 1.5050 and is heading upward. You believe that price will continue in this direction if it hits 1.5060.

You can do one of the following to play this belief:

  1. Sit in front of your computer and buy at market when it hits 1.5060 OR
  2. Set a stop entry order at 1.5060.

You use stop entry orders when you feel that price will move in one directions

 

Stop Loss Order

A stop loss order is a type of order linked to a trade for the purpose of preventing additional losses if the price goes against you.

If you are in a long position, it is a sell STOP order.

If you are in a short position, it is a buy STOP order.

REMEMBER THIS TYPE OF ORDER.

A stop loss order remains in effect until the position is liquidated or you cancel the stop loss order.

For example, you went long (buy) EUR/USD at 1.2230. To limit your maximum loss, you set a stop-loss order at 1.2200.

This means if you were dead wrong and EUR/USD drops to 1.2200 instead of moving up, your trading platform would automatically execute a sell order at 1.2200 the best available price and close out your position for a 30-pip loss (eww!).

Stop losses are extremely useful if you don’t want to sit in front of your monitor all day worried that you will lose all your money.

 

Trailing Stop

A trailing stop is a type of stop loss order attached to a trade that moves as price fluctuates.

Let’s say that you’ve decided to short USD/JPY at 90.80, with a trailing stop of 20 pips.

This means that originally, your stop loss is at 91.00. If the price goes down and hits 90.60, your trailing stop would move down to 90.80 (or breakeven).

Just remember though, that your stop will STAY at this new price level. It will not widen if market goes higher against you.

Going back to the example, with a trailing stop of 20 pips, if USD/JPY hits 90.40, then your stop would move to 90.60 (or lock in 20 pips profit).

Your trade will remain open as long as price does not move against you by 20 pips.

Once the market price hits your trailing stop price, a market order to close your position at the best available price will be sent and your position will be closed.

 

Weird Forex Orders

 

Good ‘Till Cancelled (GTC)

A GTC order remains active in the market until you decide to cancel it. Your broker will not cancel the order at any time. Therefore, it is your responsibility to remember that you have the order scheduled.

 

Good for the Day (GFD)

A GFD order remains active in the market until the end of the trading day.

Because foreign exchange is a 24-hour market, this usually means 5:00 pm EST since that’s the time U.S. markets close, but we’d recommend you double check with your broker.

 

One-Cancels-the-Other (OCO)

An OCO order is a combination of two entry and/or stop loss 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 canceled.

Let’s say the price of EUR/USD is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls 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 automatically canceled.

 

One-Triggers-the-Other

An OTO is the opposite of the OCO, as it only puts on orders when the parent order is triggered.

You set an OTO order when you want to set profit taking and stop loss levels ahead of time, even before you get in a trade.

For example, USD/CHF is currently trading at 1.2000. You believe that once it hits 1.2100, it will reverse and head downwards but only up to 1.1900.

In order to catch the move while you are away, you set a sell limit at 1.2000 and at the same time, place a related buy limit at 1.1900, and just in case, place a stop-loss at 1.2100.

As an OTO, both the buy limit and the stop-loss orders will only be placed if your initial sell order at 1.2000 gets triggered.

In conclusion…

The basic forex order types (market, limit entry, stop-entry, stop loss, and trailing stop) are usually all that most traders ever need.

Here’s a cheat sheet (current price is the blue dot):

Unless you are a veteran trader (don’t worry, with practice and time you will be), don’t get fancy and design a system of trading requiring a large number of Forex orders sandwiched in the market at all times.

Stick with the basic stuff first.

Make sure you fully understand and are comfortable with your broker’s order entry system before executing a trade.

Also, always check with your broker for specific order information and to see if any rollover fees will be applied if a position is held longer than one day.

Keeping your ordering rules simple is the best strategy.

DO NOT trade with real money until you have an extremely high comfort level with the trading platform you are using and its order entry system. Erroneous trades are more common than you think!

 

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