Forex Orders Types

For a Forex Trader, this is necessary to learn and know well about all order types of the Forex market. Order execution is a complex thing in this article we present where a trader gets difficulty and how to overcome the situation.

In this article, we shall discuss in-depth order types and how it execute properly to secure your trading account and increase your profit. 

How many order types of forex?

Here we shall focus on the trader’s perspective of the order execution process so that the trader can avoid the wrong operation during trading in the terminal.

To trade in the forex market we need to trade in a terminal like Mt4 or cTrader. Any trading terminal has the facilities to create and send orders to the trading server that fills the order. There are several types of trading orders. All orders are a kind of command by the client to place a trading transaction.

Generally, there are  4 Types of Order as follows:

Market Order

This is an order that sends a command to buy or sell a financial instrument at the market / current price. This type of order instantly executes the trading position. A market order is a type of trading order where you instruct your broker to buy or sell a specific quantity of a financial asset (e.g., currency pairs in forex) immediately at the current market price. Market orders are executed as soon as possible at the prevailing market rates. They are typically used when you want to ensure a quick execution and are less concerned about the exact price at which the trade is executed. The key point is that a market order prioritizes speed of execution over price, and you get the asset at the best available price in the market at that moment.

Here’s how a Market Order works in forex trading:

1. Execution at Current Market Price: When a trader places a Market Order, they are essentially telling their broker to execute the trade right away, at the best available price in the market at that exact moment.
2. No Price Limit: Unlike other types of orders, such as limit orders, Market Orders do not specify a particular price at which the trade should be executed. Traders are willing to accept the current market price, whatever it may be when the order is processed.
3. Speed of Execution: Market Orders are executed quickly because their main objective is to enter or exit the market immediately. Traders use them when they want to get into a trade or close an existing position right away, without delay.
4. Guaranteed Execution: Market Orders are typically guaranteed to be executed, provided there is sufficient liquidity in the market for the given currency pair. However, during periods of extreme volatility or in illiquid markets, the actual execution price may differ slightly from the expected price due to slippage.

pending orders forex

This type of order opens or closes a position at a pre-defined price as soon as the market reaches the price. Hence, this position executed in the future.  Pending order is used when trading quotes reach a certain price. Pending order also has a few types like – Buy Limit, Buy Stop, Sell Limit, and Sell Stop. Stop-loss and profit orders are Pending orders after activating stoploss and take-profit orders related to the open position.

There are several types of pending orders in forex trading:

• Buy Limit: A buy limit order is placed below the current market price. It is used when a trader believes that the price will decrease to a certain level and then reverse and rise. When the market reaches the specified price (or goes lower), the order is triggered, and a buy trade is executed.
• Sell Limit: A sell limit order is placed above the current market price. It is used when a trader anticipates that the price will increase to a certain level and then reverse and fall. When the market reaches the specified price (or goes higher), the order is triggered, and a sell trade is executed.
• Buy Stop: A buy-stop order is placed above the current market price. It is used when a trader expects that the price will continue rising once it reaches a certain level. When the market reaches the specified price (or goes higher), the order is triggered, and a buy trade is executed at the prevailing market price.
• Sell Stop: A sell-stop order is placed below the current market price. It is used when a trader believes that the price will continue falling once it reaches a certain level. When the market reaches the specified price (or goes lower), the order is triggered, and a sell trade is executed at the prevailing market price.

Stop Loss order

To cut losses and close a trade early, a stop-loss order is used. If the market goes to the opposite of an open position then a stop-loss order is used. For a long position, it met the Bid price on the opposite for a short position it met the ask price.

A stop-loss order is an instruction given by a trader to their broker to automatically sell a currency pair (or close a position) when the market price reaches a specified level, known as the “stop price.”

• Risk Management: The primary purpose of a stop-loss order is to limit potential losses. By setting a stop price, traders establish a point at which they are willing to exit a trade to prevent further losses beyond that point.
• Execution: Once the market price reaches or surpasses the specified stop price, the stop-loss order is triggered, and the broker will execute the trade at the prevailing market price. This ensures that traders can exit their positions even if they are not actively monitoring the market.
• Automatic Protection: Stop-loss orders provide automatic protection against adverse market movements. If the market moves against the trader’s position, the stop-loss order helps minimize the loss by selling the position at the pre-determined stop price.

Take Profit

After opening the trade, we can set the desired level where the trade closes with profit. This type of order closes the position. Like stop-loss orders, this order also met the Bid price for a long position and it met the Ask price in the case of a short position. Here’s how a Take Profit order works:

• Setting a Profit Target: When a trader opens a trade, they typically have a specific profit target in mind. This target is often based on technical analysis, fundamental analysis, or a trading strategy. The trader decides at what price level they want to take profits.
• Placing the Take Profit Order: To lock in those profits automatically, the trader places a Take Profit order with their broker. This order includes the currency pair, the trade direction (buy or sell), and the specific price level at which they want the trade to be closed.
• Automatic Execution: Once the market reaches the specified Take Profit price, the order is triggered, and the trade is automatically closed at that price. This ensures that the trader captures the intended profit without having to monitor the market constantly.
• Advantages: Take-profit orders are essential for disciplined trading and risk management. They help traders stick to their trading plan by ensuring that profits are taken when the target is reached. This prevents traders from getting greedy or letting winning trades turn into losing ones.

 

For a better understanding of placing an order, you can find our trading on YouTube Chanel here.  https://www.youtube.com/@preferforex_official 

Placing Market Order – Exactly

This type of order is instant execution. With the market order, a trader sets the current price to execute the trade, here trader can set a slippage or a price deviation so that if the current moves further certain points then trade should also be executed.

For example, The market is offering GBP / USD The asking price is 1.6842 right now. If we place the buy order your trading platform will instantly execute your order at this given price.

At the time of closing a position manually, the trader is also executing a market order but in the opposite direction of the open position. For example, to close a position bought in GBP / USD, the trader has to sell the same amount he has bought. This is what is also called a clearing or settlement operation.

It is important to note that with almost all brokers, your profits and losses will be calculated in the currency that you use to deposit to your Forex account. For example, if we close a position bought in USD / JPY, it will be buying The Japanese yen again, but your profits or losses will be converted to the currency in which you have opened your account in the broker.

Stop Loss Strategy

Why does Stop Loss Hit earlier before the price level?

The problem of placing proper stop loss and pending order level and the solution to that problem

Sometimes you may see that your order doesn’t trigger through the quotes to reach the price where you placed the order and sometimes you may see that your stop loss hit earlier though the chart price doesn’t reach the price where you set the stop loss. Here is another article on Proper Stop Loss placing to provide you with more guidelines.

At the time of the execution of take-profit also see that the price is going into the profit zone, but you are not able to grab the profit and this makes you so worried. Below is the cause of this and how to overcome this problem.

When a predefined order level like stop loss, take profit, stop order, and limit orders stay above the current price of the market and is going to hit the level, then it will hit a few pips earlier before the chart price reaches the level. How many pips earlier it will hit will depend on the spread of the pair.

When a predefined order like – stop loss, take profit or pending orders are below the current price of the market and is going to hit the level. When it reaches the level it may not trigger due to spread. The market needs to go 2-3 pips more to trigger the order.

This type of issue can be seen in two types of trading as follows –

a.  Placing a Stop Loss For a Sell Order

In this situation, the SL level is above the current market price and it will hit 2-3 pips earlier, though the chart price will not reach the level and make you out of the trade.

How to Overcome: To overcome the situation you need to add spread to the SL. Or you can simply close the trade manually at the given SL level.

b. Placing Buy Pending Limit Order

In this case, the order level is below the current price level. Though the chart price reaches the level it may not hit your order because of the spread.

How to Overcome: In this situation, you need to add the spread with the order price level to get triggered at the proper price.

 

So, a serious forex trader should know how to place proper Orders on his terminal because this will help him avoid false triggers and execute the order at the correct time.

You know that Forex trading can be very beneficial if you have a good Forex trading strategy that can identify proper trading signals. We have tested our own strategy to adapt our own style of trading. That is making a profit consistently. Test our trading strategy with us for FREE 

Important Market Updates, Analysis, and Trading Plans Based on the Market Order Flow Method in our YouTube Channel. 

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