In order to open a position, you need to place a trading order on a trading platform. The trading order tells your broker what you want to trade and at what price. It also tells the broker how and when you want to execute the trade. In this article, we’ll look at the different types of trading orders and how to use them when trading.
Types of Trading Orders
There are many different orders you can choose from, depending on your platform and on your forex broker. These eight orders fall into two main categories.
Market orders: An order to buy or sell a certain financial asset now at the best available market price. There are several types of market orders: buy, sell, stop-loss, take profit, and trailing stop.
Pending orders: An order to buy or sell a financial asset in the future, subject to certain specified parameters. There are six types of pending orders. These are: buy limits, sell limits, buy stops, sell stops,, buy stop limits, and sell stop limits.
How To Use Pending Orders
Limit Orders
Limit orders are used when traders believe that the price will move in an unfavourable (unprofitable) direction, before reversing and moving in a favourable (profitable direction). Having a limit order in place means that traders can tell their broker what price they want to trade at, without having to wait at their computer for the currency to reach that price. There are two types of limit orders: buy limits and stops limits.
Buy Limit
A buy limit trading order is an order to buy below the current market price. It is used when the trader thinks that the price will initially drop (to an unfavourable price), and then rise again. As there is no way to know how far the price will drop, the limit order is used to set an acceptable price at which the trader is willing to buy the currency.
Sell Limit
A sell limit trading order is an order to sell above the current market price. It is used when the trader thinks that the price will initially rise (to an unfavourable price), and then fall again. As it is not possible to know how much the price will rise before eventually falling, the sell limit is used to set an acceptable price at which the trader is willing to sell the currency.
Stop Orders
Stop orders are used when traders believe that the price will continue to move in the same favourable (profitable) direction. Having a stop order in place means that traders can plan in advance what price they want to trade at and tell the broker when to process the order, without having to wait around for the currency to reach that price. There are two types of stop orders: buy limits and stops limits.
Buy Stop
A buy stop trading order is an order to buy above the current market price. It is used when traders think that the price is rising and will continue to rise. The buy stop order enables to choose when they want to execute the trade i.e. at which price to enter the market.
Sell Stop
An sell stop trading order is an order to sell below the current market price. It is used when traders think that the price is falling and will continue to fall. The buy stop order enables to choose when they want to execute the trade i.e. at which price to enter the market.
We hope you have enjoyed our deep dive in which types of trading orders exist in Forex. If you wish to learn more about trading Forex, we recommend our Forex Education section.
