Types of Forex Orders
Welcome to the real Forex trading world. If you are ready to start trading, it’s a great time to understand what kind of orders are available for you, to trade with full comfort. In Forex trading there are several orders types, for all market conditions like sell-buy here and now, we call it market order, or when the price reaches a certain level and you want to get involved automatically without waiting for that to happen.
It’s important to mention that the order may vary from platform to platform and while some of them are common among them all, some others available on few platforms only. We will start with the MT4 and MT5 platforms as those are some of the most common choices among retail traders. We will also cover types of orders that are available on other platforms.
Orders available in the MetaTrader 4 Platform
The very first type of order, which you will find available anywhere, regardless of your choice of broker or platform, is the Market Order.
Market orders allow you to execute a trade now, at the best available price. It is like going to the store, you look at the label and you decide to buy the product. What you see is what you get (excluding rare conditions like slippage or off-quote). The only difference here will be that instead of buying a TV, tomatoes or shoes, you will be buying one currency against the other.
Before we move on to our example, we should mention what is ASK and what is BID.
If you open the “New Order” window inside MT4, you will see that there are two price quotes. Those are the best available prices at that given point in time, that you can buy or sell a given instrument (in our case USDJPY).
ASK (buy) – This is the minimum price; a seller is willing to accept. This is the price you will get if you buy.
BID (sell) – This is the maximum price; a buyer is willing to pay. This is the price you will get if you sell.
The difference between the two is called the spread. This is the most common commission that the broker takes for himself.
Ok, we are ready to move on with the example.
USDJPY – the bid price is currently 106.73 while the asking price is 106.74 (excluding the last digit). If you want to buy USDJPY at market price, then the order will be filled at 106.74 (ask). If you would like to sell, the order will be filled at 106.73 (bid).
A limit order was created to provide the traders with the solutions of getting involved in a trade after pullbacks, even if they aren’t around at that time, assuming that the price has reached the level they wanted. A great solution for traders if used wisely.
Imagine that you have just opened the chart and this is what you are seeing:
A massive drop. Probably the very first thing you are considering at that moment is to go ahead and sell but since the price dropped so much, it would be better to wait for a bit of a pullback – for example, sell if the price retraces to the blue line:
This is exactly where the Limit orders come in hand. Instead of waiting, glued to the chart, for the price to push up a bit before you sell, you can set up an automatic order that will execute your sell order, once the desired price is reached. Fantastic, isn’t it?
Sell Limit Order
Definition – Sell Above The Current Market Price.
Buy Limit Order
Definition – Buy Below The Current Market Price.
The stop orders (buy and sell) can help traders that want to enter a trade after verifying it goes in the directions they expect. Great for trending markets and for breakout strategies.
Sell Stop Order
Definition – Sell Below The Current Market Price.
In this case, we want to see the price moving below a certain level, in order for the sell order to be executed.
Buy Stop Order
Definition – If the price moves above a certain level set by the trader, a buy order will be executed.
In MetaTrader 5 two more types of orders were introduced.
Buy Stop Limit – The buy stop limit order combines the features of Stop and Limit orders. In other words, we implement an extra requirement, before an order is placed. First of all, we want the price to push higher (imagine you are waiting for a breakout), then and only then, if we get the breakout and the price reaches a certain level (that we set), a buy limit order will be placed below (to give us the chance to buy at a better price). If might sound confusing at first, but once you realize the power of this order, you will love it! In essence, it gives us even more free time, away from the monitor. This is how it looks:
Sell Stop Limit – Sell Stop Limit carries the same features but in the opposite direction. Once again, we anticipate the price to go lower (compared to the current market price), and if that happens, a Sell limit Order will be placed.
Stop Loss Order
Definition – The stop-loss order is used to limit the potential risk, that we are taking when opening a trade. If the Stop Order is triggered, your position will be closed, limiting the risk.
Let me give you a quick example.
Price is moving in a bullish trend (up), and you plan to trade the breakout of the last swing high. In other words, if the price goes above the High marked in the blue rectangle, you will open a buy trade. Great! You are on the way to your first six-digit profit BUT what if we are wrong? What if the price drops lower, instead of going higher after the trade is triggered?
We must have an “exit plan” from the trade, in case it doesn’t develop as we expect. Where are we going to close to trade in this scenario? The last swing low (red line) is picked as an exit strategy (Just as an example). Fantastic, we are all set.
And here comes the question – should I be around the computer, monitoring the price all the time to close the trade if it goes against me? That’s the good news, no you shouldn’t. This is where Stop Orders come into play. You simply select the market level at which you would like your order to be closed in case the market goes against your direction, and you can carry on with your life routine.
Trailing Stop Order
Trailing stop order is among the favourite ones in the trading community! Why you might be wondering, well very simple – it is the order that we use when the trade is running in profits and let’s admit it, who doesn’t like profits?
So, the idea of the trailing stop is that after a certain amount of pips or points, the stop loss will start moving along with the market price, locking in profits.
Here is an example. You bought EUR/USD at 1.2550 with a trailing stop of 50 pips. This means that your original stop loss is at 1.2500. Once the price moves up, say 50 pips to 1.2600, the trailing stop would move to 1.2550 (break-even). So, the trailing stop loss helps you to guarantee profits in case the market turns against your direction. Professional traders love this order as they prefer to ride the trends as long as the market doesn’t decide to take them out.
That covers the orders available to us in MetaTrader4 and MetaTrader5. Now let’s take a look at a few other types of orders available on other platforms.
GTC (Good ‘Till Cancelled)
This type of order will remain active until you decide to cancel it. It doesn’t matter what kind of order it is important here is that it doesn’t have an expiration time.
If you are going to use such an order, make sure NOT to forget about it (trust me, it happens).
GFD (Good for the Day)
As the name suggests, your order will remain active until the end of the trading day. Say you have a Buy Limit in place. If it doesn’t get triggered by the end of the day, it will be removed. This type of order is useful when you are expecting a certain move to happen within a range of time.
OCO (One Cancels the Other)
Perfect for range breakout trading. Imagine the price is trading in a narrow range, and you are expecting a breakout in either direction. Once one of the orders is filled, the other one will be cancelled.
Most brokers should offer these types of orders however there are some that still don’t which simply is unaccessible, here at 100ForexBrokers we find this to be irresponsible because these orders are imperative for risk management and put simply, you won’t be a successful trader without using these. Here is a list of our preferred brokers that offer all the right trade types.
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