Introducing the types of trading orders in the Forex market
Foreign exchange market (Forex) is a decentralized global market where currencies of different countries are traded. Traders participate in this market to speculate on the future value of currencies and make profits. If you are new to the forex market, we suggest you read the guide to Forex trading for beginners. There are different types of trading orders in the Forex market that traders can use to manage open positions and execute their new trades. In this article, we will look at the different types of orders in Forex trading.
Market orders are orders to buy or sell an asset or a security at the current market price. A market order is the simplest type of order because you simply request that the order be executed as soon as possible at the first available price on the market. This type of order is usually used by traders who want to enter or exit the trade quickly and at the most reasonable price. However, since the price at which the order is executed is not guaranteed, there is a risk of slippage, which may differ from the trader's expected price due to volatility or market liquidity.
Pending orders are orders made to buy or sell a currency pair at a specific price. Pending or conditional orders are used when a trader has a certain price in mind and wants to enter or exit at that price level or if possible at a better price. For example, if the EUR/USD currency pair is currently trading at 1.2000, the trader may place a pending (conditional) order to buy at 1.1950, so if the price reaches 1.1950 or less, the order will be executed, but if the price does not reach the set price level, the order will not be completed.
This order is divided into two categories:
- Buy orders on the floor or sell on the ceiling (Limit Order)
- Buy orders on the ceiling or sell on the floor (Stop Order)
1. Buy orders on the floor or sell on the ceiling (Limit Order)
Limit orders in forex trading refer to an order placed by a trader to buy at a price floor (in a downtrend) or to sell at a price ceiling (in an uptrend).
For example, if a trader on a downtrend of the EUR/USD pair believes that the EUR/USD parity value will return upwards after hitting the rate of 1.2000, trader can benefit from the upward return by setting a limit order at 1.2000, which is below the current market price of 1.2070. Limit buy order registration means that the trader's order is executed only when the market price reaches 1.2000 or less and giving the trader a better entry price.
Similarly, if a trader in an uptrend in the GBP/USD currency pair believes that the value of the GBP/USD pair will move lower after hitting 1.4000, trader can place a sell limit order (Sell Limit), at the price of 1.4000, which is higher than the current market price of 1.3850, will benefit the most from the downward return of the price in this chart. Placing a Limit Sell Order means that a trader's order is executed only when the market price rises to or above 1.4000 and gives the trader a better entry price.
In both cases, the trader uses a limit order to set an ideal price to enter the trade, rather than simply accept the market price at the time of execution.
2. Buy orders on the ceiling or sell on the floor (Stop Order)
Stop orders in forex trading are orders that are given by a trader to buy at a price ceiling (in an uptrend) or sell at a low (in a downtrend).
For example, if a trader in an uptrend of EUR/USD believes that the EUR/USD parity will continue to move towards higher prices after hitting and crossing the 1.2500 rate, trader can set a stop order at a price higher than 1.2500 e.g. 1.2510, which is above the current market price of 1.2470, after breaking the resistance and ensuring that the price is not going to be able to continue. The upward trend will benefit the most from this upward movement.
A stop buy order means that the trader's order is executed only when the market price reaches 1.2510 or more.
Likewise, if a trader in a GBP/USD bearish trend believes that the GBP/USD pair will continue to move towards lower price targets after hitting and breaking support at 1.3500, you can enter a Sell Stop order at the price of 1.3490, which is lower than the current market price of 1.3650, will benefit the most after the failure of the price support and ensuring the continuation of the downward trend in this chart. Placing a sell stop order means that the trader's order will be executed only when the market price drops to 1.3490 or below.
Stop Loss order is a type of order used in forex trading and designed to limit the potential loss of a trader in a position. This is a guideline for buying or selling a currency pair after the price reaches a certain level.
For example, suppose a trader buys EUR/USD at 1.2000, but wants to limit his potential loss if the market moves against their position. Trader can place a stop loss order at 1.1900 (100 pips below its entry price), which means that if the price drops to 1.1900, the order is activated and the position is automatically sold (liquidated) to limit losses.
Similarly, if a trader sells GBP/USD at 1.4000 and wants to limit his potential loss if the market moves against his position, trader can place an order stop at 1.4100 (100 pips above his entry price). This means that if the price rises to 1.4100, the order is executed and the position is automatically settled to limit the loss.
A take profit order is an order placed to close a position when the price reaches a certain level. A take profit order is used to lock in profit and settle part or all of a trade, a take profit order is usually placed above the current market price for a buy position and below the current market price for a sell position.
For example, suppose a trader buys EUR/USD at 1.2000, but wants to take his potential profit at 1.2500 and partially or fully liquidate his trade. Trader can place a take-profit order at the rate of 1.2500 (500 pips more than his entry price), which means that if the parity of the currency pair rises to 1.2500, the order will be activated and the position will be automatically sold (liquidated) and the profit of the transaction is recorded in the account balance.
Similarly, if a trader sells GBP/USD at 1.4000 and wants to lock in potential profits if the market moves in the direction of the trader's analysis, he can place a take profit order at 1.3500 (500 pips below input price). This means that if the price drops to 1.3500, the order will be executed and the position will be executed automatically, recording the profit of the trade in the account balance.
As a result, understanding the different types of trading orders in the Forex market such as market orders, pending orders, stop-loss orders, and profit placing orders is very important for the success of Forex trading. Any type of order can help traders make trades with greater accuracy and control, which can ultimately lead to increased profits and reduced risk.
However, beyond trading orders, there is much more to learn about forex trading. To become a successful trader, you need to continually expand your knowledge and skills. The articles section of Kopito Invest provides a wealth of information on a variety of forex trading topics, from the basics to advanced strategies. We invite traders of all levels to review our articles section and use the resources available to enhance their trading knowledge and skills. Start your journey to successful forex trading with Kopito Invest today.