Major Forex Trading Order Types for Beginners
We’ve arrived at one crucial area in forex: forex trading order types. It simply means the instructions you give your broker to enter or exit a trade. Knowing how to place orders effectively is vital for executing your trading strategy and managing risk.
Next on the table is how to place orders in forex trading. Finally, we’ll explain forex order execution with straightforward examples and calculations. Whether you’re a novice trader or just brushing up on the basics, you’re in the right place.
Types of Forex Trading Order Types
At the heart of forex trading is the ability to execute orders effectively. Essentially, orders are instructions to your broker to buy or sell a currency pair under specific conditions. The most common types include:
Forex orders come in two main flavors: market orders and pending orders. Let’s explore them further:
#1. Market Orders:
These are your “get in the game now” orders. A market order instructs your broker to buy or sell a currency pair at the best available price in the current market.
This ensures immediate execution. But, the exact price you get filled at might differ slightly from the price you see on your trading platform. This difference is called the spread, — which is the broker’s commission for executing your trade.
Example:
You see that EUR/USD is trading at 1.1320/1.1322 (bid/ask price). You place a market order to buy 10,000 EUR. Your broker might fill your order at 1.1322, meaning you pay slightly more than the quoted price.
#2. Pending Orders:
Unlike market orders, pending orders allow you to set specific price conditions for entering or exiting a trade. These are helpful when you want more control over your entry and exit points. Here are the common pending orders:
Buy Limit Order:
This tells your broker to buy a currency pair only if the price falls to a specific level (your limit price) you set. This is useful if you believe the price might fall before going up again.
Example:
EUR/USD is trading at 1.1350. You think it might dip slightly before continuing its uptrend. You place a buy limit order at 1.1320. Your order will only be triggered if the price falls to 1.1320 or lower.
Sell Limit Order:
The opposite of a buy-limit order. You instruct your broker to sell a currency pair only if the price rises to a specific level (your limit price). This is useful if you want to lock in profits at a certain price point.
Example:
You bought EUR/USD at 1.1300. The price rises to 1.1380, and you want to take profit if it goes any higher. You place a sell limit order at 1.1380. Your order will only be triggered if the price reaches 1.1380 or higher.
Buy Stop Order:
This instructs your broker to buy a currency pair only if the price rises above a specific level (your stop price) you set. This is used to enter a trade in anticipation of a breakout or price increase.
Example:
EUR/USD is in a consolidation phase of around 1.1300. You believe a breakout is coming and want to buy if the price rises above that level. You place a buy-stop order at 1.1350. Your order will only be triggered if the price breaks above 1.1350.
Sell Stop Order:
The opposite of a buy-stop order. You instruct your broker to sell a currency pair only if the price falls below a specific level (your stop price) you set. This is used to limit potential losses if the price falls against your prediction.
Example: You bought EUR/USD at 1.1300. You want to limit your losses if the price falls sharply. You place a sell-stop order at 1.1250. Your order will only be triggered if the price falls below 1.1250.
How to Place Orders in Forex Trading
Placing orders might seem daunting, but it’s quite straightforward. Below are the steps:
- Start by selecting the currency pair you’re interested in.
- Next, decide on the type of order you want to place. Enter the price level (for limit or stop orders) and the size of your trade.
Always review your order before confirming to ensure everything is as you intend.
Forex Order Execution Recap
Forex order execution refers to how your orders are filled by your broker. Market orders are executed instantly at the best available price, but keep in mind that prices can fluctuate rapidly.
Limit and stop orders give you more control over the price. Here’s a catch, though. There’s no guarantee they’ll be executed if the market doesn’t reach your specified price.
To know more about forex trading order types, click here to start your demo account.