Types of forex orders

Stop limit order forex orders

Most brokers offer the following forex orders types:

  • Market Orders
  • Limit Orders
  • Take Profit Orders
  • Stop Loss Orders
  • Trailing Stop Orders

Market Orders

  • A market order is executed immediately when placed. It is priced using the current spot, or market price.
  • A market order immediately becomes an open position and subject to fluctuations in the market.
  • This means that should the rate move against you, the value of your position deteriorates – this is an unrealized loss.
  • If you were to close the position at this point, you would realize the loss and your account balance would be updated to include the revised totals.

Limit Orders

  • A limit order is an order to buy or sell a currency pair, but only when certain conditions included in the original trade instructions are fulfilled.
  • Until these conditions are met, the order is considered a pending order and does not affect your account totals or margin calculation.
  • The most common use of a pending order is to create an order that is executed automatically if the exchange rate reaches a certain level.
  • For example, if you believe that EUR/GBP is about to begin an upswing, you could enter a limit buy order at a price slightly above the market rate. If the rate does move upwards as you predicted and reaches your limit price, a buy order is executed with no further input on your part.

A pending limit order has no impact on your account totals and can be cancelled at any time without consequence. If the conditions of a limit order are met however, the pending order is executed and becomes an active market order.

Take-Profit Orders

  • A take-profit order automatically closes an open order when the exchange rate reaches the specified threshold.
  • Take-profit orders are used to lock-in profits when you are unavailable to monitor your open positions.
  • For example, if you are long USD/JPY at 109.58 and you want to take your profit when the rate reaches 110.00, you can set this rate as your take-profit threshold.  If the bid price touches 110.00, the open position is closed by the system and your profit is secured.
  • Your trade is closed at the current market rate.  In a fast moving market, there may be a gap between this rate and the rate you set for your take-profit.

Stop-Loss Forex Orders

  • Similar to a take-profit, a stop-loss order is a defensive mechanism you can use to help protect against further losses, including avoiding margin closeouts
  • A stop-loss automatically closes an open position when the exchange rate moves against you and reaches the level you specify.
  • For example, if you are long USD/JPY at 109.58, you could set a stop-loss at 107.00 – then, if the bid price falls to this level, the trade is automatically closed, thereby capping your losses.
  • It is important to understand that stop-loss orders can only restrict losses, they cannot prevent losses.
  • Your trade is closed at the current market rate.  In a fast moving market, there may be a gap between this rate and the rate you set for your stop-loss.
  • If your stop-loss is triggered when trading resumes on Sunday, your trade is executed at the current market rate, which may be lower than your stop-loss rate — resulting in additional losses.
  • It is in your best interest to include stop-loss instructions for your open positions. Think of them as a very basic form of account insurance.

Trailing Stop Orders

  • Similar to a stop-loss, a trailing stop can be used to restrict losses and avoid margin closeouts.
  • A trailing stop resembles a stop-loss in that it automatically closes the trade if the market moves in an unfavourable direction by a specified distance.
  • The key feature of a trailing stop is that as long as the market price moves in a favourable direction, the trigger price automatically follows the market price at a specified distance.
  • This allows your trade to gain in value while reducing the amount of loss you are at risk for.
  • For example, if you hold a long position the trigger price will keep moving up if the market price moves up, but stays unchanged if the market price moves down. If you hold a short position, the trigger price will keep moving down if the market price moves down, but stays unchanged if the market price moves up.

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