Most brokers offer the following forex orders types:
- Market Orders
- Limit Orders
- Take Profit Orders
- Stop Loss Orders
- Trailing Stop 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.
- 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.
- 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.