Firstly, what is a Forex order?
The term “Order” in Forex refers to how you wish to enter or exit a trade.
If you’re a newbie, you might be under the impression that there are only two types of order – Buy order and Sell order. However, there is more to it. There are different types of orders that can be placed just to buy/sell.
1.- Market Order
2.- Limit Entry Order
- Buy Limit
- Sell Limit
3.- Stop Entry Order
- Buy Stop
- Sell Stop
4.- Stop Loss Order
5.- Trailing Stop Loss
Above are the most common and most used orders in the market. Now, let us discuss each one of them.
A market order is a type of order to buy/sell at the best available price. In other words, it is an order where one gets filled at the current market price.
For example, let’s say the current bid-price of EUR/USD is 1.1050, and the ask-price is 1.1052. Now, if you want to buy the EUR/USD right away, the broker will give you the current market ask-price, which is 1.1052. Similarly, if you execute a sell on EUR/USD, you will be given the bid-price, which is 1.1050.
Note: When you Buy, you will be given the ask-price, and when you sell, you will be given the bid-price.
A market order is similar to an order that you place on e-commerce websites to buy a product.
Limit Entry Order
It is a type of entry order which is placed below the market price to go long or above the market price to go short.
Many intermediate and professional traders opt for this type of order. I would too recommend traders to select this type of order over market order because; you would be buying/selling at a discounted price.
For example, let’s say the current market price of USD/CHF is 0.9941. But, you think that the price is expensive, so you plan to buy it at 0.9930. There are two ways to place the order – you can sit in front of your monitor and execute the buy order when the price reaches 0.9930, or you can place a Limit Buy order at 0.9930. By placing this limit order, your trade will automatically be executed once the price touches 0.9930.
Stop Entry Order
In a Stop Entry Order, you can place a buy order above the current market price or a sell order below the current market price.
For example, if the current market price of NZD/USD is 0.6561 and you want to buy it when it goes up to 0.6570, you must place a Buy Stop order at this price. When the market comes to this price (0.6570), the order will get executed.
Stop Loss Order
This type of order was created to prevent losses on your trade. It is an order which is placed against your Buy/Sell price.
In case of a long position, the stop loss is typically kept below the entry price, and for a short position, the stop loss kept above the entry price.
Trailing Stop Loss
This order is quite different from the above order. The above orders remain stationary, while a trailing stop-loss order fluctuates. It is basically a stop-loss order, which is not constant. Let us comprehend this with an example.
Let’s say you’ve shorted EUR/USD at 1.1120, with a trailing stop loss of 20 pips.
This means that your initial and original stop loss is 1.1140 pips. If the price goes down to 1.1100, then your trailing stop loss will move down to 1.1120. Which also means that now you’re completely risk-free because the stop loss is at the price you entered the trade.
Moving forward, if the price drops further down to 1.1080, then your trailing stop loss too would move down to 1.1100, maintaining the 20 pips distance.
So, as your trailing stop loss is 20 pips, you will be in the trade until the price moves 20 pips against you. And, if the market price hits your trailing stop loss, your positions on the trade will be closed.
Hence, this completes the major “types of orders” used in the Forex market.
Now, if you think you’ve mastered the above concept, you can check your understanding by taking up the quiz below.