Types of Forex Orders

Lets talk about orders.

“Would you like pips with that？”

Okay, not that type of order.

An order is an offer sent using your brokers trading platform to open or close a transaction if the instructions specified by you are satisfied.

Basically, the term “order” refers to how you will enter or exit a trade.

Here we discuss the different types of orders that can be placed in the forex market.

Be sure that you know which types of orders your broker accepts.

Different brokers accept different types of forex orders.

Order Types

There are some basic order types that all brokers provide and some others that sound weird.

Orders fall into two buckets:

Market order: an order instantly executed against a price that your broker has provided.

Pending order: an order to be executed at a later time at the price you specify.

Heres a quick “map” of the different types of orders within each bucket.

Market Order

A market order is an order to buy or sell at the best available price.

For example, the bid price for EUR/USD is currently at 1.2140 and the ask price is at 1.2142.

If you wanted to buy EUR/USD at market, then it would be sold to you at the price of 1.2142.

You would click buy and your trading platform would instantly execute a buy order at that (hopefully) exact price.

If you ever shop on Amazon.com, it‘s kinda like using their 1-Click ordering. If you like the current price, you click once and it’s yours!

The only difference is you are buying or selling one currency against another currency instead of buying a fart machine.

Please keep in mind that depending on market conditions, there may be a difference between the price you selected and the final price that is executed (or “filled”) on your trading platform.

When you place a market order, you do not have any control over what price your market order will actually be filled at.

Limit Order

A limit order is an order placed to either buy below the market or sell above the market at a certain price.

This is an order to buy or sell once the market reaches the “limit price”.

You place a “Buy Limit” order to buy at or below a specified price.

You place a “Sell Limit” order to sell at a specified price or better.

Once the market reaches the “limit price” the order is triggered and executed at the “limit price” (or better).

In the image above, the blue dot is the current price.

Notice how the green line is below the current price. If you place a BUY limit order here, in order for it to be triggered, the price would have to fall down here first.

As you can see, a limit order can only be executed when the price becomes more favorable to you.

Notice how the red line is above the current price. If you place a SELL limit order here, in order for it to be triggered, the price would have to rise up here first.

For example, EUR/USD is currently trading at 1.2050. You want to go short if the price reaches 1.2070.

You can either sit in front of your monitor and wait for it to hit 1.2070 (at which point you would click a sell market order).

Or you can set a sell limit order at 1.2070 (then you could walk away from your computer to attend your ballroom dancing class).

If the price goes up to 1.2070, your trading platform will automatically execute a sell order at the best available price.

You use this type of entry order when you believe the price will reverse upon hitting the price you specified!

A limit order to BUY at a price below the current market price will be executed at a price equal to or less than the specified price.

A limit order to SELL at a price above the current market price will be executed at a price equal to or more than the specific price.

Stop Entry Order

A stop order “stops” an order from executing until price reaches a stop price.

You would use a stop order when you want to buy only after price rises to the stop price or sell only after the price falls to the stop price.

A stop entry order is an order placed to buy above the market or sell below the market at a certain price.

You place a “Buy Stop” order to buy at a price above the market price, and it is triggered when the market price touches or goes through the Buy Stop price.

You place a “Sell Stop” order to sell when a specified price is reached.

In the image above, the blue dot is the current price.

Notice how the green line is above the current price. If you place a BUY stop order here, in order for it to be triggered, the current price would have to continue to rise.

Notice how the red line is below the current price.

If you place a SELL stop order here, in order for it to be triggered, the current price would have to continue to fall.

As you can see, a stop order can only be executed when the price becomes less favorable to you.

For example, GBP/USD is currently trading at 1.5050 and is heading upward. You believe that price will continue in this direction if it hits 1.5060.

You can do one of the following to play this belief:

Sit in front of your computer and buy at market when it hits 1.5060 OR

Set a stop entry order at 1.5060.

Stop Loss Order

An order to close out if the market price reaches a specified price, which may represent a loss or profit.

A stop loss order is a type of order linked to a trade for the purpose of preventing additional losses if the price goes against you.

If you are in a long position, it is a sell STOP order.

If you are in a short position, it is a buy STOP order.

REMEMBER THIS TYPE OF ORDER.

A stop loss order remains in effect until the position is liquidated or you cancel the stop loss order.

For example, you went long (buy) EUR/USD at 1.2230. To limit your maximum loss, you set a stop loss order at 1.2200.

This means if you were dead wrong and EUR/USD drops to 1.2200 instead of moving up, your trading platform would automatically execute a sell order at 1.2200 the best available price, and close out your position for a 30-pip loss (eww!).

Stop losses are extremely useful if you dont want to sit in front of your monitor all day worried that you will lose all your money.

You can simply set a stop loss order on any open positions so you wont miss your basket weaving class or elephant polo game.

Please note that a stop order is NOT guaranteed a specific execution price and in volatile and/or illiquid markets, may execute significantly away from its stop price. Stop orders may be triggered by a sharp move in price that might be temporary. If your stop order is triggered under these circumstances, your trade may exit at an undesirable price. If triggered during a sharp price decline, a SELL stop loss order is more likely to result in an execution well below the stop price. If triggered during a sharp price increase, a BUY stop loss order is more likely to result in an execution well above the stop price.

Trailing Stop

A stop loss order which is always attached to an open position and which automatically moves once profit becomes equal to or higher than a level you specify.

A trailing stop is a type of stop loss order attached to a trade that moves as the price fluctuates.

Let‘s say that you’ve decided to short USD/JPY at 90.80, with a trailing stop of 20 pips.

This means that originally, your stop loss was at 91.00. If the price goes down and hits 90.60, your trailing stop would move down to 90.80 (or breakeven).

Just remember though, that your stop will STAY at this new price level. It will not widen if the market goes higher against you.

Going back to the example, with a trailing stop of 20 pips, if USD/JPY hits 90.40, then your stop would move to 90.60 (or lock in 20 pips profit).

Your trade will remain open as long as the price does not move against you by 20 pips.

Once the market price hits your trailing stop price, a market order to close your position at the best available price will be sent and your position will be closed.

Limit Orders versus Stop Orders

New traders often confuse limit orders with stop orders because both specify a price.

Both types of orders allow traders to tell their brokers at what price theyre willing to trade in the future.

The difference lies in the purpose of the specified price.

A stop order activates an order when the market price reaches or passes a specified stop price.

For example, EUR/USD is trading at 1.1000, you have a stop entry order to buy at 1.1010. Once the price reaches 1.1010, your order will be executed.

But it doesn‘t necessarily mean that your buy order was filled at 1.1010. If the market was moving fast, you might’ve been filled at 1.1011.

Basically, your order can get filled at the stop price, worse than the stop price, or even better than the stop price. It all depends on how much price is fluctuating when the market price reaches the stop price.

Think of a stop price simply as a threshold for your order to execute. At what exact price that your order will be filled at depends on market conditions.

A limit order can only be executed at a price equal to or better than a specified limit price.

For example, EUR/USD is trading at 1.1000, you have a limit entry order to buy at 1.1009. Your order will not be filled unless you can get filled at 1.1009 or better.

Think of a limit price as a price guarantee. By setting a limit order, you are guaranteed that your order only gets executed at your limit price (or better).

The catch is that the market price may never reach your limit price so your order never executes.

In the previous example, EUR/USD may only fall to 1.1009 before skyrocketing. So even though you wanted to go long EUR/USD, your order was never executed since you were trying to enter a long position at a cheaper price. You watch EUR/USD rise without you.

This is the tradeoff when using a limit order instead of a market order.

Weird Forex Orders

“Can I order a grande extra hot soy with extra foam, extra hot split quad shot with a half squirt of sugar-free white chocolate and a half squirt of sugar-free cinnamon, a half packet of Splenda and put that in a Venti cup and fill up the ”room“ with extra whipped cream with caramel and chocolate sauce drizzled on top？”

Oops, wrong weird order.

Time-in-Force (TIF) Orders

Depending on your trading platform, you may see whats known as Time-in-Force (TIF) orders.

Time-in-Force (TIF) orders are special instructions that tell a broker or trading platform how long an order should remain active before it is canceled if not executed.

These instructions give traders more control over the timing and execution of their trades.

Here are some common TIF order types:

Good for the Day (GFD)

This is the default TIF for most trading platforms. The order remains active until the end of the current trading day. If not filled by then, it is automatically canceled.

Because foreign exchange is a 24-hour market, this usually means 5:00 pm EST since that‘s the time U.S. markets close, but we’d recommend you double-check with your broker.

Good Till Cancelled (GTC)

The order remains active until it is either filled or manually canceled by the trader. Yep, thats right. A GTC order remains active in the market until you decide to cancel it.

Your broker might have restrictions on how long a GTC order can remain active (e.g. 90 days).

Immediate or Cancel (IOC):

The order must be filled immediately in full or in part. Any portion of the order that cannot be filled immediately is canceled.

Fill or Kill (FOK):

This is similar to IOC but stricter. The entire order must be filled immediately; otherwise, the whole order is canceled.

Good Till Date (GTD):

The order remains active until a specified date. If not filled by the end of that date, it is canceled.

Why use TIF orders？

Control over timing: TIF orders allow you to specify when you want your order to be executed, giving you more control over the timing of your trades.

Risk management: By setting time limits, you can avoid unexpected price movements that might occur if your order remains active for too long.

Trade execution: Certain TIF orders, like IOC and FOK, can help you get your trade executed quickly if there is enough liquidity in the market.

The best TIF order for you depends on your trading strategy and goals. If you want to trade quickly, IOC or FOK might be suitable. If you are patient and willing to wait for a better price, GTC or GTD might be better choices.

Conditional Orders

OCO and OTO ) are types of conditional orders used in trading. They are linked orders that become active based on specific conditions being met.

One-Cancels-the-Other (OCO)

An OCO order consists of two orders linked together. If one order is executed, the other order is automatically canceled.

OCO orders are often used for managing risk and exiting trades. For example, you could place a stop-loss order to limit losses if the price moves against you and a limit order to take profits if the price moves in your favor. If either order is executed, the other is canceled, ensuring you exit the trade.

Lets say the price of EUR/USD is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls below 1.1985.

The understanding is that if 1.2095 is reached, your buy order will be triggered and the 1.1985 sell order will be automatically canceled.

One-Triggers-the-Other (OTO)

An OTO order also consists of two orders linked together. However, in this case, the execution of one order triggers the placement of the other order.

OTO orders are often used for entering trades and setting up subsequent actions based on the initial trades outcome.

You set an OTO order when you want to set profit-taking and stop loss levels ahead of time, even before you get in a trade.

For example, USD/CHF is currently trading at 1.2000. You believe that once it hits 1.2100, it will reverse and head downwards but only up to 1.1900.

The problem is that you will be gone for an entire week because you have to join a basket weaving competition at the top of Mt. Fuji where there is no internet.

In order to catch the move while you are away, you set a sell limit at 1.2100 and at the same time, place a related buy limit at 1.1900, and just in case, place a stop-loss (buy stop) at 1.2130.

As an OTO, both the buy limit and the stop-loss orders will only be placed IF your initial sell order at 1.2000 gets triggered.

Not all brokers offer OCO and OTO orders. Check with your broker to see if they are available. Complex orders like these require careful planning and understanding of the underlying mechanics to use effectively.

In conclusion…

The basic forex order types (market, limit entry, stop entry, stop loss, and trailing stop) are usually all that most traders ever need.

To open a position, the following pending orders may be used:

“Buy stop” to open a long position at a price higher than the current price

“Sell stop” to open a short position at a price lower than the current price

“Buy Limit” to open a long position at a price lower than the current price

“Sell Limit” to open a short position at a price higher than the current price

Heres a cheat sheet (current price is the blue dot):

Unless you are a veteran trader (don‘t worry, with practice and time you will be), don’t get fancy and design a system of trading requiring a large number of forex orders sandwiched in the market at all times.

This is always a tradeoff when using a limit order instead of a market order.

For example, if you want to buy “right now,” youll have to pay the higher ask price. This is called a “market order” as it will trade at whatever the market price is.

If you prefer to save some money, youll need to use a “limit order”.

The problem with being patient is sometimes the price continues to go up and your limit order is never filled.

If you still want to get in a trade, you have to either enter a market order or update your limit order. This now means youll end up paying (even) more than the original ask price.

Stick with the basic stuff first.

Make sure you fully understand and are comfortable with your brokers order entry system before executing a trade.

Also, always check with your broker for specific order information and to see if any rollover fees will be applied if a position is held longer than one day.

Keeping your ordering rules simple is the best strategy.

DO NOT trade with real money until you have an extremely high comfort level with the trading platform you are using and its order entry system. Erroneous trades are more common than you think!