forex basics

Detailed Guide to Forex Orders

I have heard stories about traders entering trades at the right time with the right analysis but did not capitalize on the trade because they placed wrong orders. These are signs of poor preparations and no trader should be guilty of the same.

 

Understanding the various types of orders available and how it works is immensely important and in this blog post, I will discuss the same.

 

You will learn everything you need to know about forex market orders and their types in this blog post.

 

I will discuss every type of order in detail as well as which orders to use, and when, so stay attentive till the end and do not skip any part.

Contents

What is an order?

Types of orders

Which order to use and when?

Are you comfortable with forex orders?

 

 

Key Takeaways

i. An order is an instruction given to the broker to buy or sell a currency pair.
ii. Market orders allow traders to enter at the price that’s going on at that moment.
iii. Pending orders allow traders to enter at their desired price.
iv. Stop loss order and take profit order are also available to us to trade.

 

 

 

 

What is an order?

 

forex order

 

An order is an instruction given to the broker by the client or the trader. These instructions would consist of buying a currency pair or even selling it, at the desired price of the trader. These orders are normally placed online on the broker’s terminal.

 

Orders are the primary thing in the forex market as without an order placed, traders would not be able to enter into trades in the currencies. 

 

All forex market participants place orders in order to initiate positions, the institutional participants place orders on the forex market network and the retail participants place orders to either buy or sell through their broker on the forex market network.

 

Once an order is placed, the next process is order execution. Once the broker is notified of the details of the order, the order is placed on the forex market network, and a buyer or seller is searched according to the order that has been placed. 

 

For a buy order placed, it will be filled only when a matching sell order exists on the forex market, whereas if a sell order has been placed then it will be placed only when a matching buy order exists on the forex market.

 

This is basically the bid and ask process of the forex market. We know that the forex market is a decentralized marketplace for the exchange of foreign currency. 

 

Hence, in every market, there can be an exchange only when there are buyers and sellers and when the buyer’s interests match the interests of the seller's.

 

The bid is the price at which the buyers are ready to buy the currency pair, these are the buy orders that are placed by the buyers on the forex market. 

 

The ask is the price at which the sellers are ready to sell the currency pair and these are the sell orders placed by the sellers.

 

Every time the bid and ask prices are matched there is a transaction.

 

 

Types of Orders

 

types of forex order

 

Traders can place orders with the brokers or can also place orders straight into the market through Direct Market Access provided by the broker. 

 

These orders can be as simple as an order for buying or selling at that instance or can be complicated as an order for buying or selling once the price of the currency pair reaches a certain price level. 

 

There are many order types that traders can take advantage of while they trade the forex market. These order types are provided by almost all the brokers out there.

 

Traders can decide as to which order type they should use according to their plan.

 

1. Market Order

 

Market forex order

 

A market order when placed initiates a trade at the market price at that moment. Traders can place a market order to buy and sell a currency pair

 

The orders are filled at that bid or ask at that particular moment i.e. buy orders are filled at the ask price and sell orders are filled at the bid price

 

The market order is a plain and simple type of order. When a trader places a buy market order, they get into a long position in a currency pair and when a trader enters a sell market order, they get into a short position in the currency pair.

 

 

2. Pending Order

Pending orders are a conditional order type. In this type of order, trades are not opened at the instance when it is placed, instead, it is opened when the price of the currency pair reaches a pre-defined price level which would then trigger the order placed and the position is entered into accordingly i.e. long or short. 

 

There are four types of pending orders:

 

i) Buy Limit Order

 

Pending forex order's type buy limit order

 

This is an order placed in order to buy the currency pair or to enter into a long position when the price reaches a pre-defined level. 

 

Traders place a buy limit order when the current market price of the currency pair is above the pre-defined level at which the buy order would be triggered. 

 

Therefore, buy limit orders would be filled when the future ask price matches the price level that the trader predefines.

 

 

ii) Buy Stop Order

 

forex buy stop order

 

This is an order placed in order to buy the currency pair or to enter into a long position when the price reaches a pre-defined level. 

 

Traders place a buy stop order when the current market price of the currency pair is below the pre-defined level at which the buy order would be triggered. 

 

Therefore, buy stop orders would be filled when the future ask price matches the price level that the trader predefines.

 

 

iii) Sell Limit Order

 

Sell limit forex order

 

This is an order placed in order to sell the currency pair or to enter into a short position when the price reaches a pre-defined level. 

 

Traders place a sell limit order when the current market price of the currency pair is below the pre-defined level at which the buy order would be triggered. 

 

Therefore, sell limit orders would be filled when the future bid price matches the price level that the trader predefines.

 

 

iv) Sell Stop Order

 

sell stop order

 

This is an order placed in order to sell the currency pair or to enter into a short position when the price reaches a pre-defined level. 

 

Traders place a sell stop order when the current market price of the currency pair is above the pre-defined level at which the sell order would be triggered. 

 

Therefore, sell stop orders would be filled when the future bid price matches the price level that the trader predefines.

 

 

v) Buy Stop Limit Order

 

buy stop limit forex order

 

As the name suggests, the buy stop limit order looks to combine the characteristics of both the buy stop orders and the buy limit orders.

 

In this type of order, a trader enters two price levels. When the price breaks the upper level, a buy entry will be taken when the price reaches the lower level.

 

vi)Sell Stop Limit Order

 

sell stop limit forex order

 

The sell stop limit order too, looks to combine the characteristics of both the buy stop orders and the buy limit orders.

 

In this type of order, a trader enters two price levels. When the price breaks the lower level, a sell entry will be taken when the price reaches the upper level.

 

 

3. Stop Loss Order

Stop loss is a risk management mechanism that traders utilize in order to cut their losses short before it becomes a huge loss. 

 

Stop loss orders are placed in an already open position in which if the price moves in the opposite direction of the trade then the order would be triggered once the price reaches the stop loss price level.

 

For instance, if a trader has initiated a long position in a currency at a given price, he can place a stop loss order at any price level below the price at which he went long. 

 

The stop loss order would be triggered only when the price of the currency moves down to that particular price level and the trader would be out of the trade with a loss, but a small loss.

 

In case of a short position, the trader would place the stop loss order at a price level above the price at which he entered into the short position in the currency pair. 

 

The stop loss order would be triggered only if the price of the currency pair rises to the stop loss price level and would end the trade then and there. 

 

Stop loss orders should be placed in every trade as the price of a currency pair can always move in the opposite direction. In order to protect the trade from incurring a huge loss, stop loss orders will cut the loss short and protect the capital.

 

stop loss forex order

 

 

4. Take Profit Order

Take profit orders are placed in an already open position at price levels at which the trader intends to lock in profits made on the trade in case the price moves in his desired direction.

 

Take profit orders to come in very handy when volatility is high and when the price may not sustain at the price level.

 

When traders enter into a long position in a currency pair, they can place a take profit order at a price level above the price at which they entered into the trade.

 

And if a short position has been initiated then traders can place a take profit order at a price level below the price at which the trade was initiated.

 

Take profit orders usually end the trade and allow traders to book profits and move on. Some traders choose to book profits partially. 

 

They choose to only close out a part of the position and let the other part of the position be open in order to capitalize on any further price movement in the direction of the trade.

 

 

Market orders and pending orders are placed in order to initiate a trade. Orders are placed to either buy or sell the currency pair. 

 

Stop loss orders and take profit orders are placed after a buy or sell position has already been initiated. These orders will result in the position being squared off.

 

 

Which order to use and when?

 

among forex order which topic is have to use and and what time

 

The options that traders have in terms of the orders that can be placed are tools that they make good use of to capitalize on the price movements of the currency pairs

 

It is important that traders use the right order type according to their trading plan or else they will miss out on potential wins and profits.

 

The market orders are simple orders that are placed when traders want to buy or sell the currency pair at that instance.

 

Pending orders being conditional orders are placed when traders intend to buy or sell the currency pair when the price reaches a certain level. 

 

Buy limit orders are placed when the current market is above the price level at which the buy order is placed. 

 

In this, the trader is of the view that price will see a bounce away from that level once the price of the currency moves down towards it.

 

Buy stop orders are placed when the current market is below the price level at which the buy order is placed.

 

In this, the trader is of the view that price will move even further upwards once it crosses that price level.

 

Sell limit orders are placed when the current market is above the price level at which the sell order is placed.

 

In this, the trader is of the view that the price will further decline once the price reaches that level.

 

Sell stop orders are placed when the current market is below the price level at which the sell order is placed.

 

In this, the trader is of the view that price will see a bounce away from the level once it reaches it.

 

Coming to the buy stop limit orders and the sell stop-limit orders, these orders are not used much by traders but can actually be of great help in trading.

 

You can use a buy stop limit order when you are waiting for the price to break a resistance. Once the price breaks this, entry will be taken at a level below it.

 

In this way you can trade breakouts and even get a better price for your entry.

 

Same is the case with sell stop limit orders. You can wait for the price to break a support and take a sell entry at a better price.

 

 

Are you comfortable with forex orders?

Knowing about the different types of forex orders available is very important and I hope that after reading this blog post you are well versed and can use these orders with ease.

 

Don’t forget to share this blog post with every trader you know and let them also have an in-depth understanding of forex orders.

 

Feel free to reach out for any questions or queries through the comments section and I will get back to you for sure.

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