Order Types

The term “order” refers to how you will enter or exit a trade. Here we discuss the different types of forex orders that can be placed into the forex market. Be sure that you know which types of orders your broker accepts. Different brokers accept different types of forex orders. There are some basic order types that all brokers provide and some others that sound weird.

Forex Order Types

Most brokers offer the following order types:

Market Orders
Limit Orders
Take Profit Orders
Stop Loss Orders

Market Orders

A market order is executed immediately when placed. It is priced using the current spot, or market price. A market order immediately becomes an open position and subject to fluctuations in the market. This means that should the rate move against you, the value of your position deteriorates – this is an unrealized loss. If you were to close the position at this point, you would realize the loss and your account balance would be updated to include the revised totals.

Limit Orders

A limit order is an order to buy or sell a currency pair, but only when certain conditions included in the original trade instructions are fulfilled. Until these conditions are met, the order is considered a pending order and does not affect your account totals or margin calculation. The most common use of a pending order is to create an order that is executed automatically if the exchange rate reaches a certain level. For example, if you believe that EUR/GBP is about to begin an upswing, you could enter a limit buy order at a price slightly above the market rate. If the rate does move upwards as you predicted and reaches your limit price, a buy order is executed with no further input on your part.

Take-Profit Orders

A take-profit order automatically closes an open order when the exchange rate reaches the specified threshold. Take-profit orders are used to lock-in profits when you are unavailable to monitor your open positions. For example, if you are long USD/JPY at 109.58 and you want to take your profit when the rate reaches 110.00, you can set this rate as your take-profit threshold. If the bid price touches 110.00, the open position is closed by the system and your profit is secured. Your trade is closed at the current market rate. In a fast moving market, there may be a gap between this rate and the rate you set for your take-profit.

Stop-Loss Orders

Similar to a take-profit, a stop-loss order is a defensive mechanism you can use to help protect against further losses, including avoiding margin closeouts A stop-loss automatically closes an open position when the exchange rate moves against you and reaches the level you specify. For example, if you are long USD/JPY at 109.58, you could set a stop-loss at 107.00 – then, if the bid price falls to this level, the trade is automatically closed, thereby capping your losses. It is important to understand that stop-loss orders can only restrict losses, they cannot prevent losses. Your trade is closed at the current market rate. In a fast moving market, there may be a gap between this rate and the rate you set for your stop-loss. If your stop-loss is triggered when trading resumes on Sunday, your trade is executed at the current market rate, which may be lower than your stop-loss rate -- resulting in additional losses. It is in your best interest to include stop-loss instructions for your open positions. Think of them as a very basic form of account insurance.