When starting out with forex trading, it is important to be aware of the various types of forex orders which can be executed, the ways in which they can be used and the best times to choose each one. Here we look at all of the main types of forex orders so that you can have a better idea about the best type to suit your trading style and requirements.
Executing Market Orders
A market order is the easiest and quickest type of order to execute as it instructs the broker to immediately execute the trade at the best price currently available. This means that there is no stipulation of a timeframe or price and therefore no control at all over the price at which the order is filled. Although the advantage of this type of order is that it will be executed extremely rapidly (depending on the liquidity of the market) and that it often incurs lower commission than other order types, there are also disadvantages in that the price at which the order is filled could well be a lot worse than the prices seen on screen when the order was placed.
A market order should be placed by a trader who wants to place a guaranteed trade straight away but is best suited to longer term trades rather than day trading. For those who want to limit their risks, this is not the best order type as there is a lack of control over price.
What is a Pending Order?
A pending order refers to a forex order which has been entered onto the trading platform but which will not be executed until particular conditions have been met. This order type enables the forex trader to leave their positions open with a certain amount of security as they know that if the trade hits the specific conditions, it will trigger the order to be executed. There are several types of pending orders including:
- Buy Limit
- Buy Stop
- Sell Stop
- Sell Limit
- Stop Loss
- Take Profit
Pending orders are perfect for traders who do not want to be tied to their PC throughout their trading period. By setting up a loss or profit threshold in advance, a trader can set up their orders knowing that they will be actioned if and when their chosen circumstances come to pass.
Using the Take Profit Order
A trader can use a take profit order to close their trade once it has achieved a certain profit level. It is a type of limit order which can often be used together with a stop loss order to limit risk in executed trades. When an investor uses a take profit order, they are limiting their risk and exposure to the market as their trade will be exited once the market has achieved a favourable price without waiting to see if there will be further drops. Strategically, it is best to use a take profit order on short term trades. Many investors use the average true range or pivot points to define the best possible take profit order level.
When to use the Stop Loss Order
A stop loss order can be placed with a trader’s broker to either sell or buy once an asset has reached a particular price. It is used as a tool to limit any possible losses on a position and the advantage of using this order type is that there is no need to constantly monitor the way in which the asset is performing.
The downside is that it is possible that the stop price could be put into action by just a short term fluctuation in the asset’s price. The best strategy for using this type of order is to choose a stop loss percentage which allows a certain amount of fluctuation while still preventing as much risk as possible. Looking at the history of the asset’s fluctuations is a good way to determine this figure.
Post by Konstantin Rabin of Best Binary Trading Brokers