Different Types of Forex Orders

The term forex order simply means how you will enter or exit a trade. There are many different types of forex orders, which traders use to manage their trades. Different forex brokers offer a variety of different order types that are specifically designed to let investors set various limits and conditions for their trades, so they can enter and exit the market appropriately. 

In this article, we will discuss the main types of forex orders and help you understand how each type of order works in practice.

What Is Forex Order

An order is simply the way that a trader enters or exits the forex market. Although there are a variety of forex orders, the most common types include market orders, pending orders, take-profit orders, stop loss orders and trailing stop orders.

Market Order

Market orders are the most common and straightforward type of forex order. If the investor submits a market order, that means he/she requires his/her broker to buy or sell currency pairs at the best possible price for the moment.

Typically, scalpers and day traders rely on market orders to enter and exit the market quickly, in accordance to their strategy.

Pending Order

Pending order is the trader's instruction to a brokerage company to buy or sell a security at pre-defined conditions in the future. A pending order gets you into a trade when conditions are just right for your strategy and helps you avoid missing a trade, even if you step away from your computer. There are four types of pending orders that you can utilize:

1. Buy Limit

The Buy Limit order allows you to set a buy order below the current market price. This means that the current price level is higher than the value in the order. Usually this order is placed in anticipation of that the price, having fallen to a certain level, will increase.

2. Sell Limit

Obviously, this is the exact opposite of a buy limit order, as you are setting a specific price that you are looking to sell this currency pair. The order allows you to sell at the Bid price that is equal to or higher than that specified in the order. The current price level is lower than the value in the order. Usually this order is placed in anticipation of that the price, having increased to a certain level, will fall.

As the chart above shows, buy limit orders are always placed below current price, and as soon as a market hits a price level of the order, BUY order is opened at the given price. 

On the other hand, if you expect a downswing, you may place a sell limit order which will get executed at the specified price level above current price. These orders have no effect on your account margin unless or until the orders are executed.

3. Buy Stop

The buy stop order allows to buy at the Ask price that is equal to or higher than that specified in the order. As soon as a market hits a price level of a buy stop pending order, the buy order is opened at the given price.

Usually this order is placed in anticipation of that the price, having reached a certain level, will keep on increasing.

4. Sell Stop

Sell stop pending orders request investor to sell at the Bid price that is equal to or lower than that specified in the order. The current price level is higher than the value in the order. Usually this order is placed in anticipation of that the price, having reached a certain level, will keep on falling.

As the chart above shows, buy stop pending orders are always placed above current price. As soon as a market hits a price level of a buy stop pending order, the buy order is opened at the given price. Sell stop pending orders are always placed below current price.

Take Profit Order

With take-profit orders, your position is automatically closed out once you have realized a specified level of profits based on a given price level of the profit-target order. Because the price can unexpectedly reverse, you need to set a take profit value to take the profit automatically before it moves in the opposite direction.

For example, if you’re going long on EUR/USD at 1.1200 and wish to close the position as soon as the exchange rate next hits 1.1230 to ensure you make money, you could set your ‘take profit rate’ accordingly so you don’t miss the boat.

As the chart above shows, Take-Profit orders for BUY trades are always placed above entry / current price, while Take-Profit orders for SELL trades are always placed below entry / current price.

Stop Loss Order

This order is used for minimizing of losses if the security price has started to move in an unprofitable direction. If the security price reaches this level, the whole position will be closed automatically.

A stop-loss order not only protects your trade from a huge capital loss, but it also exterminates the emotional factor that can tempt you to overtrade and suffer even greater losses.

As the chart above shows, Stop-Loss orders for SELL trades are always placed above entry / current price, while Stop-Loss orders for BUY trades are always placed below entry / current price.

Trailing Stop Order

The trailing stop order, also known as the profit protecting stop order, represents an order you give to your forex broker to buy or sell if the currency moves in an unfavorable direction. It is similar to the stop-loss order, but the main difference is that the trailing stop moves as the price moves – allowing you to secure the profits, while also diminishing the potential loss of capital in case the trade doesn’t work out.

Conclusion

The type of forex order that you choose to use, depends on current market situation and on how you expect the market to move. Understanding different types of forex orders and their uses is an essential basic skill.

No matter how much you prepare, how great and elaborated your trading plan is, and how smart is your strategy – the forex market can turn against you in any moment. The best way to understand the different types of forex orders are to use them under real trading conditions via forex brokers.