Order Types In Forex Trading
Forex trading comes with a variety of different orders types, traders need to understand the different types and which options suit their trading approach. Here we will be looking at the most common order types used by traders.
Market orders are the most common in Forex trading. The name tells you everything that you need to know, if you enter a market order then you are executing a trade immediately at the best available price.
As an example, if EURUSD currently has an ask price of 1.201 and a bid price of 1.200, a buy market order will be executed at the price of 1.201, and a sell market order would be executed at the price of 1.200.
Once an order is received it will be executed instantly at the present bid or ask price. it is important to note that when a trader manually closes out positions, this is also a type of market order since the trade is closed at the relevant price at that exact time.
Market order – GBPUSD H1
Limit orders are placed above or below the current market price, and are executed only when these prices are tested by the market. Buy limit orders are set below the price the market is trading at currently, and sell limit orders are set above.
Say EURUSD is trading at 1.20, a buy limit must be lower than 1.20, while a sell limit must be placed higher than 1.20.
A buy limit will be executed at a price less than or equal to the specified price, in contrast, a sell limit order will be executed at a price greater than or equal to the specified price.
Limit orders – NDJPY H1
Stop orders are also placed above or below the current market price, however, in the opposite direction. A buy stop is placed above the present quote and a sell stop is placed below.
Using the same EURUSD example. If the quote is 1.20 at the moment, a buy stop can be placed above at 1.22, and a sell stop below at 1.18
A market order will be triggered when the specified price is met. For a buy this would be the ask price, and for a sell it would be the bid price.
Stop orders – EURUSD H4
Stop loss and take profit orders
Stop loss and take profit orders are also stop orders, however, they serve the purpose of exiting a trade instead of entering.
A stop loss (SL) is an order to close out a position for a loss. When buying, it is set below the entry level. When selling, it is set above the entry price. These orders are an essential part of risk management.
A take profit (TP) order Is an order to close a trade for a profit. When buying, it is set above the entry price. When selling, it is set below. TP’s are a great way to lock in gains.
Orders will be closed (exited) when the predetermined levels (SL or TP) are hit.
Stop loss and take profit – EURGBP H4
A trailing stop is a stop order that moves in the direction on price movement and is used to exit trades. The distance away from the market is set by the trader, for example, a trailing stop of 50 pips will follow 50 pips away from the current market price.
Should you purchase EURUSD at 1.20 and price moves up to 1.21, the trailing stop will be at 1.205. If price then reversed and fell to 1.205, a market order would be triggered, and the trade would automatically close.
These orders are a great way to lock in profits without limiting upside potential.
Trailing stops can also be trailed manually by a trader using technical analysis, below we have an example of a trailing stop managed manually.
Trailing stop – EURUSD H4
Those are all the orders that you need to know when getting started in Forex trading. You will find that the most successful, and profitable, traders stick to these order types.
Choose a broker that offers a variety of order types, so you can use the option that best suits your strategy. Our top 3 recommended brokers are:
Keep it simple.
Forex Order Types FAQ
Market orders, limit orders, stop orders, stop losses, take profits, and trailing stops.
Market orders are the most common in Forex trading, the name tells you everything that you need to know, if you enter a market order then you are executing a trade immediately at the best available price.
Limit orders are placed above or below the current market price and are executed only when these prices are tested by the market. Buy limit orders are set below the price the market is trading at now and sell limit orders are set above.
Stop orders are also placed above or below the current market price. A buy stop is placed above the present quote and a sell stop is placed below.
An automatic order used to close a trade for a loss.
An automatic order used to close a trade for a win.