What Are Order types available in Forex?
During trading, you can have a clear strategy, predict the direction of the market being analyzed and completely trust the trade that is about to be made. However, several times an important factor is not taken into consideration, the entry point.
The entry point is vital when positioning a trade; it can be given in two ways: with a pending order or at the market price. We will briefly explain each of the orders in the Forex market that you must take into account to improve your trades.
Market Order
A Market Order is an instruction for immediate buy or sell at the current price. There are two options whenever this order is executed:
BUY is enforced when you want to buy the asset, and
SELL is enforced when you want to sell the asset.
In this order of ideas, the market order is being enforced, when a trade is manually closed since the operation will close with the price that the asset marks at that moment.
Stop Order
When speaking of the stop order, reference is made to a tool that permits buying and selling at a certain price. These are the two classes:
Buy Stop: what is proposed at that time is to buy at a price higher than the current price of the asset, and
Sell Stop: you intend to sell at a price lower than the market price.
For example, assuming that the EUR/USD pair is at a price of 1.1344 and is approaching an important resistance level; if there is any news or data by which it is expected that this resistance is surpassed, what we must do is to apply a BUY STOP order at a higher market price and higher than the resistance, (for this example we assume that its 1.1400). In this way, if the prediction is met and the resistance is surpassed, the trade will be executed when it reaches that level. In a similar way the SELL STOP works, if the expectation is that the market price breaks support, we fix a price at 1.1200 for example, and the trade will open in a position of sale when the market reaches that price.
This type of order is usually used in resistance, high levels of congestion and supports.
Limit Order
This type of order is distinguished by buying or selling at a reasonable rate that the market price, that’s if you intend to buy, you position the trade at a lower market price, and when you want to sell its located at a higher price.
In this order of ideas, assuming we have the same EUR/USD at a price of 1.1344. We want to buy, but think that the pair is expensive to buy, what we have to do is to make a BUY LIMIT order at the price of 1.1200 when the market reaches that price the purchase order will be executed. It is the same with the SELL LIMIT, but in this situation, we will wait for the market to go up a bit more before having a fall. This type of order is mostly used in levels of possible rebounds in the trends.
As vital as the entry orders are the exit orders since it is one thing to enter the market at the right time, but another difference is to identify when to exit the trade either to protect profits or to avoid significant losses.
Take Profit
When you make a trade you can place a given take profit in line with the profit you are anticipating, have in mind that once the market reaches that level, the order will be activated and executed at the best available price (either your positioned level or another near). For the selling position, the price is placed below the entry price while for the buying position the price is placed above the entry price. In this way, you secure the profits you expect to attain with this trade.
For instance, if you have an EUR/USD trade and the pair direction in your favor, you should put a take profit close to the next support/resistance as the case may be; hence, ensure the profitability of the trade, without exposing itself to a likely change of direction in those conflict zones.
Stop Loss
This type of exit order is very vital since it prevents you from having critical losses in your trading account. It is a tool that allows the trade to close at a certain level; the principle is the same as the take profit order.
In a buying position, the stop loss is placed at a price lower than the current price of the asset, and in a selling position, it is placed at the price higher than the current price of the asset. In this way generating a maximum loss for each trade, this loss is determined according to each trader, his trading system, and strategy.
In conclusion, it is worth indicating that when you create an order it does not imply that it will open, remember that market conditions may change and the level you placed may not be reached, hence, always be sure to keep an eye on your pending orders and cancel them it is the case.