In this Wiki, we will take a look at many different Order Types and how they work so that you can use them in your trading.
Common Order Types
At some point, you will go beyond the academics of trading and will need to start actually making some trades. Opening, closing, and managing trades are accomplished through five main order types. Market orders, limit entry orders, stop entry orders, stop loss orders and trailing stop loss orders all serve a specific role in trading the Forex market. The implementation of each order type is slightly different among currency brokers. Ensure that you have a firm grasp on how to use your dealer’s software before you trade with real money.
Market Order
A market order is an order to buy or sell (short) at the best available price.
For example, if the bid price for EURUSD is currently at 1.1140 and the ask price is at 1.1142 and you wanted to buy the EURUSD at market, then it would be sold to you at the ask price of 1.1142. This is an instant execution at the best available price and is the fastest way to get into or out of the market.
Limit Entry Order
A limit entry is an order that is placed to either buy below the current market price or sell above the current market price. If the price moves to your order then you will be filled.
For example, EURUSD is currently trading at 1.1050 and your research shows that you would like to go short if the price reaches 1.1070. You can either sit in front of your monitor and wait for price to hit 1.1070 (at which point you would click a sell market order), or you can set a sell limit order at 1.1070 and be free to walk away from your computer to do other tasks.
If the price goes up to 1.1070, your trading platform will automatically execute a sell order at the best available price. Traders that like to use support and resistance will often use this order type as they can’t always be in front of the computer and don’t want to miss out on any opportunities.
Stop Entry Order
A stop entry order is an order placed to buy above the current market price or sell below the current market price at a certain price you pre-define.
For example, GBPUSD is currently trading at 1.5050 and is heading upward. You believe that price will continue in this direction if it hits 1.5060. You can do one of the following to trade this analysis: sit in front of your computer and buy at market when it hits 1.5060 or set a stop entry order at 1.5060. You use stop entry orders when you feel that price will continue to move in one direction. This is a popular order type that breakout traders use.
Stop Loss Order
A stop loss order is a type of order linked to a trade for the purpose of preventing additional losses if price goes against your position. A stop loss order will remain in effect until the position is liquidated or you cancel the stop loss order.
For example, if you went long (buy) EURUSD at 1.1230, to limit your maximum loss, you might set a stop loss order at 1.1200. This means that if your analysis was wrong and the EURUSD dropped to 1.1200 instead of moving up, your trading platform would automatically execute a sell order at 1.1200. This stop loss order will convert into a market order when it is triggered so slippage is possible if the market is moving aggressively. The benefit is that you get out immediately and limit any further losses.
Stop losses can be extremely useful if you don’t have time to sit in front of your monitor all day.
Trailing Stop
A trailing stop is a type of stop loss order attached to a trade that moves as the market price moves in the direction of your trade.
For Example, if you went short the USDJPY pair at 120.80, with a trailing stop of 20 pips. This means that originally, your stop loss was 121.00. If the price moves down and hits 120.60, your trailing stop would move down to 120.80 which is your original entry price or breakeven point.
The trailing stop loss will only move in the direction of your trade and will not stay stationary as the market moves against your trade. It will not widen if market goes higher against the position in this example which has a trailing stop of 20 pips. If the USDJPY drops 120.40, then the trailing stop would move to 120.60 which lock in 20 pips profit.
The trade will remain open as long as price does not move against you by 20 pips in this example. Once the market price hits the trailing stop price, a market order to close the position at the best available price will be sent and the position will be closed.
Less Common Order Types
There are several less common order types available to traders. Not all brokers will support these orders and not all trading platforms will provide the capability to execute these types of orders. For example, if you are using MT4, which is the most widely used forex platform at the time of this writing, these order types are not supported unless you are using a third party developed EA (Expert Advisor).
The point here isn’t to make your trading more complicated. Rather, this is more of an academic study simply to make you aware of what is available.
Good till Cancelled (GTC)
A GTC order is one that remains active in the market until you cancel it. The broker will not cancel the order unless you run out of money so it’s your responsibility to manage your order. Good for the Day (GFD)
A GFD order remains active in the market until the end of the trading day that the order was created. Since Forex is a 24 hour market the rollover time is typically 5:00 pm EST or 22:00 GMT. At this time a GFD order will cancel.
One-Cancels-the-Other (OCO)
An OCO order is a mixture of two entry and/or stop-loss orders. Two orders with price and duration variables are placed above and below the current price. When one of the orders is executed the other order is simultaneously canceled.
For example, the price of EUR/USD is 1.1050 and you want to either buy at 1.1080 over the resistance level in anticipation of a breakout or initiate a short position if the price falls below 1.1030. If 1.1080 is reached, your buy order will be triggered and the 1.1030 sell order will be automatically canceled.
One-Triggers-the-Other
An OTO is the opposite of the OCO, as it only puts on orders when the parent order is triggered. You might set an OTO order when you want to set profit taking and stop loss levels ahead of time, even before you get in a trade.
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