The forex market being a trillion-dollar market also comes with a variety of orders that traders use to manage trades. The order types vary from one broker to another. Likewise, it is important for any trader to have a clear understanding of the standard forex order types to trade the market appropriately.
The four types of orders available in the forex market are:
- Market Order
- Limit Order
- Stop Order
- Stop Loss Order
Market Order
This type of forex trading order allows traders to buy and sell securities at the prevailing market price. By clicking the buy button in any forex-trading platform, you would essentially be buying or selling the security at the current market price.
For instance, if the bid price for EUR/USD is 1.2123, and the ask price is 1.2127, by clicking Buy in a trading platform; you will buy the currency pair at 1.2127.
Read More:Â What is Forex Technical Analysis
Limit Entry Order
These types of forex orders allow traders to buy below a prevailing market price or sell above a certain market price. The order allows traders to buy and sell securities at their preferred prices rather than the current market price.
Consider EUR/USD is trading at 1.2140. If a trader wants to go short, he can place an order to trigger a sell order once the price rises to 1.2170. While you can sit in front of the computer to wait for the 1.2170 price level, you can also place an order that will trigger automatically once the price rises to 1.2170
Stop Entry Order
A stop entry order is the opposite of the Limit Entry Order. In this case, a stop entry order allows traders to buy above a prevailing market price or sell below the prevailing market price. Similarly, it allows traders to buy and sell at preferred market prices.
Consider GBP/USD trading at 1.4350 and heading upward. Instead of buying at this price, a trader may set up a stop entry order to enter a buy position on the price rising to the 1.4360 level. By setting up the order, one does not need to sit in front of the computer, as it will trigger automatically.
Stop Loss Order
A stop-loss order is a special type of order that allows traders to limit the amount of losses they are likely to incur in any given trade. In case of a long position, a trader would essentially place a sell stop order that would close the trade once the price drops to a given level. Similarly, in case of a short position, a trader would place a buy Stop order that closes a trade once the price rises to a given level
For instance, if you enter a long position on EUR/USD at 1.2250, to limit losses, you can place a sell stop order at 1.2230. In case the price drops to the 1.2230 level, the trade would close automatically, consequently limiting losses.
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