In this article, we will discuss the characteristics, advantages and disadvantages of some of the most common order types that allow you to enter, exit and schedule trades in the Forex market. A wide variety of orders are designed for all types of trading styles, which may go by different names on specific platforms.
Types of orders in the forex or currency market
- Order to Market (Market Order)
- Entry Stop Order
- Limit Order
- Stop Loss Order
- Trailing Stop Order
- Order Take Profits (Take Profits Order – TPO)
Order to Market (Market Order)
Market orders are those that are executed immediately at the current rates known to the market. For example, suppose GBP/USD is currently trading at 1.6842. If we want to buy at this price, we must click buy, and your trading platform will instantly execute a buy order at that price.
By manually closing a position, the trader is also technically executing a market order for the same amount as the open position but in the opposite direction. To close a long position in GBP/USD, the trader only has to sell the same amount he bought. This is what is also called a clearing or settlement operation.
It is important to note that with almost all brokers, your profits and losses will accumulate in the currency in your account is denominated. For example, if we close a long position in USD/JPY, you will be repurchasing Japanese Yen, but your profits or losses will be converted to the currency in which you have your account with the broker, so you don’t have to worry.
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This type of market order is used to automatically open a trade when the market reaches a certain level. You can use it if you are waiting for a specific price and want to avoid being in front of the monitor waiting.
This order automatically closes a trade when a set market price has been reached. These market orders are intended to lock in profits and limit losses.
Entry Stop Order
An entry-stop order is an order we can predetermine on the platform to buy or sell at a specific price. Let’s assume that EUR/USD is currently trading at 1.1014, and we want to buy if the price reaches 1.1100 you can monitor the exchange rate and enter a market order manually if it reaches that level. prices, or schedule an entry-stop order at 1.1100. If the price rises to that level, your trading platform will automatically execute a buy order at that price.
An entry-stop order to buy must have a price higher than the current offer (ask) price while to sell, the price must be lower than the current ask (bid). You must know that not all brokers guarantee execution at that price or close to the price set in the order.
Sometimes, entry stop orders contain a second variable: the duration time. In addition to the price at which we want to buy or sell a given currency pair, you can also specify how long the order will remain valid.
It is an order to buy or sell at a specific price that will be executed at that price or better. A limit order to sell can only be filled at the specified price or higher, while a limit order to buy can only be filled at the specified price or lower. It is also known as a Pending Order, and there are 4 types:
- Buy Limit: Order to buy at the “ask” price equal to or less than the one indicated in the order. They are used when the current price is higher than the strike price, and they are used when it is assumed that the price will fall until it finds support and then rises again.
- Buy Stop: Orders to buy at the “ask” price equal to or higher than the one indicated in the order. It is used when the current price is below the strike price, and it is used when it is assumed that the asset will continue to rise in price, probably breaking resistance.
- Buy Stop Limit: It is an order that combines the previous two since it is a stop order for placing a Buy Limit order. That is, when the “ask” price reaches the specified stop, the Buy Limit order will be placed. The stop level is placed above the current Ask price and the Stop Limit price is below the stop level.
- Sell Limit: Order to sell at the “bid” price equal to or higher than the price indicated in the order. It is used when the current price is lower than the established sale price. It is used when it is assumed that the price will go up until it finds resistance, and then it starts to go down.
- Sell Stop: Orders to sell at the “bid” price equal to or lower than the price indicated in the order. In this case, the current price is above the price established in the order. It is used when it is assumed that the asset’s price will continue to fall when it reaches a certain level, probably breaking support.
- Sell Stop Limit: It is a stop order for the placement of a Sell Limit order. The Sell Limit order will be placed when the bid price reaches the indicated stop. The stop level is placed below the current Bid price and the Stop Limit price is above the stop level.
Note that a limit order may not be filled because the market price can quickly exceed the limit price before your order can be filled. This type of order is used as protection against buying at too high prices or selling at too low prices.
Stop Loss Order
A stop loss order is an order with a preset limit to automatically close a position when a particular bid or ask price is reached to prevent further losses if the price goes against us. In a long position, the stop loss will be set below the fork, while in a short position, it will be above the fork.
A stop loss order remains active until the position is liquidated or we cancel the order. For example, if we are short USD/JPY at 107.00, we can limit the maximum loss by placing a stop loss order at 108.00. If the exchange rate moves up 100 pips, your platform will automatically execute a buy order at 108.00 and close your position at a loss of 100 pips.
If instead, you are short on a pair, you can create a stop-loss order below the current exchange rate. If the market price falls to the level established in the order, it will be activated, and your position will be automatically closed.
Limiting losses, stop losses are helpful if you want to avoid sitting in front of the trading platform all day. They also allow you not to lose more than you want if the Internet connection fails or you are simply unavailable.
Trailing Stop Order
A trailing stop order is a stop loss order attached to a position like any stop loss. Still, instead of being placed at a certain price level, it can move as the position enters profit. . By moving the stop loss trigger level, the partial gains of the position are protected.
Order Take Profits (Take Profits Order – TPO)
The Take Profit order is the opposite of a stop loss. It is like a stop profit. The TPO order specifies that the position should be closed when the current exchange rate crosses a certain level. The TPO order is set below the current exchange rate for a sell position and vice versa for a buy position.