Now it’s time to cover order types. When you execute a trade in the
Forex market it is called an ‘order’, there are different order types
and they can vary between brokers. All brokers provide some basic order
types, there are other ‘special’ order types that are not offered by all
brokers though, and we will cover them all below:
Market order –
A market order is an order that is placed ‘at the market’ and it’s executed instantly at the best available price.
Limit Entry order –
A limit entry order is placed to
either buy below the current market price or sell above the current
market price. This is a bit tricky to understand at first so let me
explain:
If the EURUSD is currently trading at 1.3200 and you want to go sell
the market if it reaches 1.3250, you can place a limit sell order and
then when / if the market touches 1.3250 it will fill you short. Thus,
the limit sell order is placed ABOVE current market price. If you want
to buy the EURUSD at 1.3050 and the market is trading at 1.3100, you
would place your limit buy order at 1.3050 and then if the market hits
that level it will fill you long. Thus the limit buy order is placed
BELOW current market price.
Stop Entry order –
A stop-entry order is placed to
buy above the current market price or sell below it. For example, if you
want to trade long but you want to enter on a breakout of a resistance
area, you would place your buy stop just above the resistance and you
would get filled as price moves up into your stop entry order. The
opposite holds true for a sell-stop entry if you want to sell the
market.
Stop Loss order –
A stop-loss order is an order that
is connected to a trade for the purpose of preventing further losses if
the price moves beyond a level that you specify. The stop-loss is
perhaps the most important order in Forex trading since it gives you the
ability to control your risk and limit losses. This order remains in
effect until the position is liquidated or you modify or cancel the
stop-loss order.
Trailing Stop –
The trailing stop-loss order is an
order that is connected to a trade like the standard stop-loss, but a
trailing stop-loss moves or ‘trails’ the current market price as your
trade moves in your favor. You can typically set your trailing stop-loss
to trail at a certain distance from current market price, it will not
start moving until or unless the price moves greater than the distance
you specify. For example, if you set a 50 pip trailing stop on the
EURUSD, the stop will not move up until your position is in your favor
by 51 pips, and then the stop will only move again if the market moves
51 pips above where your trailing stop is, so this way you can lock in
profit as the market moves in your favor while still giving the trade
room to grow and breath. Trailing stops are best used in strong trending
markets.
Good till Cancelled order (GTC) –
A good till
cancelled order is exactly what it says…good until you cancel it. If you
place a GTC order it will not expire until you manually cancel it. Be
careful with these because you don’t want to set a GTC and then forget
about it only to have the market fill you a month later in a potentially
unfavorable position.
Good for the Day order (GFD) –
A good for day order
remains active in the market until the end of the trading day, in Forex
the trading day ends at 5:00pm EST or New York time. The exact time a
GFD expires might vary from broker to broker, so always check with your
broker.
One Cancels the Other order (OCO) –
A one cancels
the other order is essentially two sets of orders; it can consist of two
entry orders, two stop loss orders, or two entry and two stop-loss
orders. Essentially, when one order is executed the other is cancelled.
So, if you want to buy OR sell the EURUSD because you are anticipating a
breakout from consolidation but you don’t know which way the market
will break, you can place a buy entry and stop-loss above the
consolidation and a sell entry with stop-loss below the consolidation.
If the buy entry gets filled for example, the sell entry and its
connected stop loss will both be cancelled instantly. A very handy order
to use when you are not sure which direction the market will move but
are anticipating a large move.
One Triggers the Other order (OTO) –
This order is
the opposite of an OCO order, because instead of cancelling an order
upon filling one, it will trigger another order upon filling one.
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