Foreign Exchange Market Orders |
In Forex terms, the way to enter or exit a particular trade is named as an “order”. There are different types of order that can be placed, some are the basic ones that are employed by most of the brokers and some are least used. Here is a quick brief on these different types of order.
The basic order types are known to most people and these are the ones all the brokers provide when you approach them to start the trade. These include,
Market Order:
This is the commonly used order where you buy or sell at the current market price. To cite an example, let us consider the EUR/USD pair that is currently running at 1.2050. If you are interested to buy this pair at this exact price, then you would buy and the trading platform will immediately carry out a buy order at this price and hence it becomes a market order
Limit Order:
A limit order is slightly different from the previous one in the sense, it the order that is placed to buy or sell at a given price rather than current price. Price and duration are two key variables in this order. An example here would make it clearer. Consider the same EUR/USD pair that is trading at 1.2150. You don’t want to buy at this price and you want to wait till the price reaches 1.2170. In this case you can either monitor or follow the trade and issue a market order when the price reaches 1.2170 or place a limit order at 1.2170 and carry on with your routine. This limit order makes sure that, your trading machine will execute a buy automatically once the price goes up to 1.2170.
Stop-loss order:
This type of order is used to ensure that you do not lose much in a particular trade. It is nothing but a limit order that is linked to an open trade that prevents losses if in case the price does not move in your favor. Suppose you place a limit order on a EUR/USD currency running at 1.2180 at 1.2220. And this time the market goes against you. So to minimize the loss, you place a stop loss order at 1.2200 in which case the trading platform will sell when the price goes down to 1.2200 and ensure you have only 20 pip loss.
Apart from these basic types there are few other types of orders that are not used frequently. These include,
Good Till Canceled (GTC):
GTC is an order that remains in active state until you decide against it to cancel it. Your broker never cancels this order at any given time.
Good For the Day (GFD):
GFD is a type of order that remains active until the end of the given trading day. In practical means, it will be active till 5pm EST because this is the time when the U.S market closes.
Order Cancels Other (OCO):
This order is a mixture of two orders: limit and/or stop-loss orders. Normally two orders with two key variables – price and duration are place above and below the current running price. When any one of these is executed the other is canceled automatically.
Checking with your brokers for specific order information is indeed a good practice and will be very useful if you are beginner to Forex. You might also confirm with your broker whether there is any rollover fee that is applied if a position is to be held for more than a day. Placing your orders with simple rules is always considered as the best technique to gain more in Forex and for this a clear understanding of the above mentioned order types is a must.
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