Types of Forex Order (e.g. limit order, trailing stop order etc

by JT McGee

What do you do when you newly start your trading career and you find that it is just not possible for you to sit with the screen all day and all night long and wait for your ideal entries and exits to show? A newbie, out of his newly-developed passion can go through the mill but not everyone as we eventually realize the need of having a facility to place all our trades with the click of a button, all in advance. The good news is that all of the good forex brokers offer this advance order-setting facility on your platform so you need not be glued to your computer all your life. Whenever the expected price that you have indicated shows, your position opens on its own and closes as soon as your indicated exit-price is seen.

Examples of Buy and Sell signals on a weighted average indicator:

Weighted MA.

The highly-sophisticated broker trading-platform has this inbuilt-intelligence to understand all your orders and execute them accordingly, on its own. It might be worthwhile to understand the various types of such orders as they will soon become an essential ingredient to your forex trading success and to start with, we will broadly categorize the kinds of orders into two i.e. Instant Orders and the Pending ones.

Simple Instant orders:

1) Simple Buy and Sell: These orders are manually executed by you at the spot- market rates. It doesn’t matter you buy or you sell as you will always get your fills at only the current market-price.

2) Take-profit orders: Every time that you take a position, you always have a certain price-target in mind that you are expecting the currency-pair price to finally move to i.e. the price at which you intend to close your position. This price target is your profit-target and also called ‘Take profit’ or ‘TP’.

After opening your position, you feed this take-profit target to your broker on your trading-platform so that the position is automatically closed at the sight of this price. It doesn’t matter; you are logged in or not!

3) Stop-loss orders: We know that sometimes, the position fails to come to your profit directions and continues to go into losses beyond your tolerance. To counter these movements, your broker gives you a facility to set an auto stop-loss price to your position in case the position goes to a loss beyond your expectations. This is called Stop-loss order, also called ‘SL’. At the sight of this SL price, the position is automatically closed as per your pre-fed order, so any anti- movement beyond this level does not affect your account balance to the full.

All these orders are useful when you don’t want to sit with the computer all day but still take the advantage of the anticipated moves. With the help of the availability of these orders, you can take any position Buy or sell, set both stop-loss and take-profit orders to the position and then leave the market to take its own course with the time.

An example of the order-taking window with Take- profit and Stop-loss options:

However, there’s another series of orders that we need to learn to further enhance our trading skills and they are called pending orders.

Pending orders

Buy limit: This is an order to buy a certain pair when the price of it has dropped to a “more favorable price”, i.e. the current market-price falls to a certain level. You, of course set this entry price on your platform where you intend the take your buy-position and then the software executes it automatically for you, whenever this indicated entry-price is seen.

Buy-stop: This is just like buy-limit orders with the only difference that the buy- position is opened only when the market price have “risen” to a certain level, of course a less-profitable trade. Traders believe that if the price rises to a certain level, it will continue to rise further; hence a BUY position is favorable here. However, hence it becomes important to wait for that confirmation point to buy and this is precisely where Buy-stop orders come into the picture.

Sell-limit: This order is made to open a sell-position when the current market price rises to a certain level, hence making it a more profitable trade. The users of this option sell something only when the prices of the pair have increased a bit, hence making it a more profitable trade. This kind of an order is called Sell-limit order.

Sell-stop: Sell-stop order is to execute an instructed sell-position when the prices have fallen to a certain level. The traders here believe that a pair after falling to this level will continue to fall further, so it is profitable to go along with the fall. Here, the trade becomes less profitable but quite certain nature because of the fall confirmation.

All these orders are advanced-order and pending in nature, which means that they are executed only at the pre-specified prices. That means if this fill-price fails to show, then the order will never execute. Of course, it becomes important to attach a time- frame to all your orders so that the broker knows when to remove the unfilled orders from your platform and this is where GTC and the GFD orders come into picture.

Good till cancelled orders also called ‘GTC’/ Good for the day’ also called GFD’: Day-traders mostly prefer that all their orders that do not get filled during the same trading day are automatically cancelled at the end of the day. These kinds of orders are called ‘GFDs’ or ‘Good for the day’ orders. That means the moment the clock ticks the midnight hour, all pending GFD orders are removed from the trader’s platform and the platform starts looking as fresh as new.

Of course, there is also another breed of the adamant traders who prefer to stick to their orders even if it took ages to fill. So these traders attached another order called “Good till cancelled” or “GTC” order, to their pending orders that ensures that the orders stay on the platform until they are either executed or are manually cancelled by the trader himself.

There are a few more kinds of orders that have their own importance in the life of a prudent trader. Let’s take a quick look at these.

One cancels the other (OCO)
This is a condition attached to a “set of orders” where you specify to the broker that in case of execution of one of the orders, the other associated order will automatically cease to exist. In other words, a fill on the first order will cancel the validity of the second order itself and hence be removed from the system.

Trailing stop:

Trailing-stop is just like a simple stop-loss order with the only difference that it does not have a fixed stop-loss target. It in-fact runs in pips where you specify how many pips of a stop-loss you are willing to set to your position. Now as the price moves in your favor, the stop-loss price also starts moving along with it instead of remaining fixed at some previous price. Remember it moves in the direction of the trade and never against it. It has the major advantage that if your position comes into profits even if in the slightest mode, setting a trailing stop -order will help you lock your profits in advance.

An example of a trailing- stop order

For example, if you sold GBPUSD at a price of 1.6550 with a trailing stop of 30 pips, then the initial stop-loss will be set at 1.6580, i.e. 30 pips away from the trading price. However, when the price starts moving in your direction and comes to let’s say 1.6500, then the trailing stop also will move with it and will become 1.6530 (i.e. 30 pips away from the current price) instead of remaining on the original 1.6580. Now, even if the market was to move against you and prices were to start rising again, your stop-loss will stay fixed at 1.6530, so that whatever may happens from there, you eventually close your trade in profits.

Image courtesy of CitiFX Pro forex accounts.

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