Types of forex orders

As you may know, financial markets move up and down throughout the trading day. Because of this, some traders like to use automated ‘orders’ to enter or exit a trade when a market reaches a specific price level.

There are many different types of forex orders which traders use to manage their trades. The ones you find on a trading platform may vary between different brokers, but there are a few basic ones most of them offer. Knowing what they are and having a firm understanding of how they work can help you in your trading.

In this lesson, we’ll look at the popular types of orders and how to use them on your trades.

Market orders

Just as the name implies, market orders are traded ‘at market’. You’d use this order type if you wanted to get into the forex market immediately, at the prevailing price.

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

For example, the EUR/USD deal ticket below shows the current prices to buy and sell the currency pair. If you placed a ‘buy’ market order while it’s priced at 0.97091, your order would execute immediately at the current price. The same will apply to a short position.

Entry orders

The next most common forex order type is an entry order. These orders are unique in that they can be set away from present market prices. This means you can open your position when a market’s price is higher or lower than it currently is by simply specifying your desired entry level.

There are many benefits to trading with entries, the main one being that you wouldn’t need to watch the market throughout the day to execute your trades.

Normally entry orders can be used for breakouts or with other strategies that demand execution when a price passes a certain point.

Limit orders

A limit order is an instruction to your broker to execute a trade at a particular level that is more favourable than the current market price. There are two types of limit orders involved in forex trading: one to open a trade and the other, to close it.

However, there’s also the risk that your order might not be filled because your target price wasn’t reached within your specified timeframe. In instances where you have an unfilled limit order to close, this could mean your trade remains in the market for longer than you intended.

Limit orders to open a trade

A limit entry order is used to enter the market at a more favourable price.

For instance, if EUR/USD is trading at 1.11511 (as shown in the first deal ticket) and you thought it would go down to 1.1120 before rallying, you’d place your limit order to buy at that price. If the market hits that level, your trade will be executed (or opened) at the best available price based on your desired price level.

This works for ‘sell’ trades as well. Say EUR/USD is trading at the 1.11521, and you thought it’d rally up to 1.1300 before selling off. You’d place your limit order to sell at 1.1300 to enter the market at that price.

When using a limit order, your order will only be filled at the price you designated or better.

Limit orders to close a trade

You can also use a limit order to close a trade when the market moves a specified amount in your favour.

For example, say you bought EUR/USD at 1.1618 and wanted to exit when your trade showed a profit of 100 pips. You’d place a ‘sell’ limit order 100 pips above your entry, or at the 1.1718 price level.

As shown in the second deal ticket below, the same is also true when you short EUR/USD and want to sell to close your position when your trade showed a profit of 100 pips.

Stop orders

Stop orders are also frequently used in forex trading. Like limit orders, there are two variations: one stop order to open a trade and another to close it.

Stop orders to open a trade

You can place a stop order to enter into a market. These orders can also be used for trading breakouts.

For instance, if you thought EUR/USD would rally further after a move above the 1.11650 level, you could place a ‘buy’ stop order for entry at 1.11651. Once it reaches this level, your stop would become a market order and be filled at the next best available price.

The same applies for sell stop orders. For example, if you thought the market would continue to fall after hitting the 1.11516 price level – you might want to place your stop order to open a ‘sell’ position when the market reaches 1.11506.

Stop orders to close a trade

You can also use a protective stop order risk-management tool to close a trade when the market moves a specified amount against your position.

For example, you can limit your risk to 50 pips on a ‘sell’ trade by placing your protective buy-stop 50 pips below your entry. The same is true for sell-stop orders on ‘buy’ trades (see examples below).

Graphical representation of a stop order on a forex chart: