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AB05 - Different types of forex trading orders

"When it comes to trading, the first thing that comes your mind is buying and selling. This might seem simple as it looks. But if you dig deeper, you will find that this simple concept has many different variations. This article takes a closer look into the forex market orders. You will learn the main types of trading orders that you can place. We will also explain to you’re the difference between the various forex trading orders. These terms are commonly used across all the markets. Traders use different types of trading orders to achieve certain specific goals when it comes to trading the markets. Therefore, as a trader, you too should have an understanding of the various forex trading orders and how you can use them to your advantage. This is useful because at a later stage you will have to start trading at some point. Learn about the different types of orders you can use to trade."

Understanding how forex trading orders work will probably be one of the most important things that you should know as a trader. You might be surprised to learn that there are in fact different types of orders that can be sent to your broker. Depending on the order type, your traders can be executed differently.

What are forex trading orders?

Forex trading orders, or trading orders in general are nothing but instructions that you give your broker on how to execute your trade. Depending on the type of order you choose, you can instruct your broker to execute your trade at a specific price, or to close your trade at a specific price.

On top of this, you can also give additional instructions such as specify the time limit until when the order should be executed and so on.

Market orders and limit orders

Market orders are those orders that tell your broker to execute your trade at the current market price. This is nothing but telling your broker to buy an instrument or a security or to sell it at whatever price the market is trading at.

With a market order, you can open or initiate a trade at the market price, and you can just as well close your open position at whatever price the markets are trading at.

A limit order on the other hand instructs your broker to execute your trades at a specific price only. Limit orders are mostly used if you expect price to behave in a certain way. In some circles, limit orders are also known as pending orders or conditional orders. This is because the orders are pending until price fulfills the specified conditions.

Types of pending or conditional orders

Pending orders can be categorized into limit and stop orders.

A limit order can be used for both buying and selling. With a limit order, you can place a pending buy limit order or a pending sell limit order. In doing so, you will specify your entry price above or below the current market (to sell or buy respectively).

The broker translates the buy limit or sell limit as a price below the current market price or above the current market price to initiate a buy or a sell order. When price reaches this specified level, your limit order is triggered, and it becomes a market order and is executed.

Limit orders can be used usually to enter a trade and also set your take profit level. The level at which you will close your trade for a profit.

A stop order on the other hand is set above or below the price and is used to stop the losses. In placing a stop order, you are telling your broker your stop your losses when price hits the specified level.

Good for day (GFD) and Good until Cancelled (GFC)

The GFD and GFC are two other orders types that bring further conditionality to the trades. These can be set with pending limit or stop orders only. With a good for the day order, you are telling your broker that the pending order is valid only for the current day.

Thus, if price doesn’t reach your limit order, then the order is automatically discarded.

On the other hand, a good until cancelled order is an open order. There are no time constraints on this order type. The order remains valid until price triggers your pending limit or stop order. The only way to cancel this order is to manually cancel the order yourself.

Depending on the trading platform that you use, you may or may not see all the order types. For example, you are most likely to use the MT4 trading platform. Here, the only order types you can set are market orders or pending orders.

All the pending orders are set to good until cancelled. This means that the order remains open unless your cancel it yourself. The first chart below illustrates this point.

AB05 01 MT4 Order Types

MT4 Instant and Pending orders

When you select the pending order type from the above, you will then see the different limit and stop orders. As you might have guessed by now, there are four types, Buy Limit, Sell Limit, Buy Stop, Sell Stop.

AB05 02 Pending orders MT4

MT4 Pending orders

Using the above pending order types, you are able to set up different pending orders depending on how you want to trade. The main benefits of using pending orders is that you can set up your trades and walk away. You do not have to be glued to your trading screens.

Market orders are ideally used by intraday traders or those who are active. This requires a lot of time as traders need to watch the charts in order to trade with the current market price.

Read 908 times Last modified on Saturday, 25 May 2019 11:27