💱 The Full Set of Forex Trading Orders
- What is a Trading Order?
A trading order is an instruction you give to your broker to buy or sell a financial asset on your behalf. Modern exchanges use order-driven systems to automatically match buyers and sellers.
Using trading orders properly gives you better control over your positions, reduces risk, and lowers trading costs. Since brokers may offer different order types, it’s important to choose one that provides a full range of trading orders.
Types of Trading Orders
There are two general categories of trading orders:
(1) Market Orders
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An order to buy or sell immediately at the best available price.
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Guarantees execution but not the execution price.
(2) Pending Orders
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Orders set to execute at a specified future price.
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Can be placed before or after opening a position and modified anytime.
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Helps eliminate the risk of slippage.
What is Slippage?
Slippage is the difference between the expected price of a trade and the actual price at which the trade is executed. It typically occurs during volatile market conditions.
Main Types of Forex Trading Orders
Forex trading offers a variety of trading orders.
(1) Market Orders
A market order is executed immediately at the current market price.
- (i) If you are opening a Long (buy) position, your order will be matched with the lowest-price seller.
- (ii) If you are opening a Short (sell) position, your order will be matched with the highest-price buyer.
Notes:
- You should avoid placing market orders when trading with a Dealing Desk.
- During news releases, the risk of placing a market order is very high.
- In the foreign exchange market, market orders are less risky due to high liquidity and significant market depth.
(2) Stop-Loss Orders
Stop-loss orders help traders limit their risk by closing a trade at a specified price level, preventing further losses.
(i) Close a Long (buy) position when the asset’s price falls below a set level.
(ii) Close a Short (sell) position when the asset’s price rises above a set level.
Stop-loss orders are essential for all Forex traders to avoid large losses when the market moves against their expectations.
Notes:
- Do not place stop-loss orders too close to the current exchange rate, as market noise may trigger them prematurely.
- When using technical analysis, consider the second support/resistance level rather than the first for your stop-loss placement.
- Limit capital leverage to allow for appropriate stop-loss placement.
- Dealing desks cannot guarantee execution of your stop-loss.
(3) Take-Profit Orders
A take-profit order closes a position once a target profit is reached. This order is useful in all market conditions, especially in ranging markets.
- (i) Close a Long (buy) position when the asset’s price rises above a specified level.
- (ii) Close a Short (sell) position when the asset’s price falls below a specified level.
(4) Trailing Stops
A trailing stop is a conditional order with a dynamic stop price rather than a fixed one.
- A trailing stop-loss adjusts the stop-loss price by a set number of points or a fixed percentage above or below the current market price.
- A trailing take-profit adjusts the take-profit price similarly.
Notes:
- In fast-moving markets, a trailing take-profit lets you lock in profits while the market moves in your favor.
- It keeps the trade open as long as the market moves favorably but closes the position if the market reverses, securing most profits.
(5) Guaranteed Stop-Loss Orders (GSLO)
A guaranteed stop-loss order ensures your position will be closed at the specified price regardless of market conditions or slippage. This is useful for swing traders but comes at a cost:
(i) GSLO orders involve a spread premium.
(ii) GSLO orders cannot be placed too close to the current market price.
Guaranteed stop-losses are typically offered by dealing desks (market makers), which often experience high slippage on order execution.
(6) One-Cancels-the-Other Orders (OCO)
An OCO order combines a stop price and a limit price, placing two orders simultaneously but executing only one. When one order is executed, the other is automatically canceled. OCO orders can be added to existing positions.
Example:
- EURUSD is at 1.1000, and you expect it to move to 1.1050.
- You also think it might test the support level at 1.0980 before moving up.
- There is a significant resistance level at 1.1010; if EURUSD breaks above this, you expect it to move to 1.1050.
To cover both scenarios, you can place an OCO order:
Order 1: Buy 2 lots if EURUSD drops to 1.0980.
Order 2: Buy 2 lots if EURUSD breaks above 1.1010.
When one order executes, the other is canceled. You will end up buying 2 lots of EURUSD at either 1.0980 or 1.1010.
Two Tips for Avoiding Mistakes When Placing Trading Orders
Making mistakes in order placement can be costly in the foreign exchange market. Here are two simple tips to help minimize your risk, especially if you are a beginner:
(A) Practice placing orders in a Demo Account before trading with real money. This allows you to familiarize yourself with all available order types without risking your funds. This method is especially useful when planning to use complex orders like trailing stops and OCO (explained below).
(B) When you begin trading with real money, start with small pilot orders. For example, before placing a 2-lot order, try placing a small order of 0.1 lots. Once your small order executes, multiply the results by 20 to estimate the cost and risk of a 2-lot order before executing it.
■ Forex Trading Orders
G.P. for OnlineForex.biz (c)
