Forex Education

Types of Forex Orders Explained – Market, Limit, Stop and More

Types Of Forex Orders Explained Market Limit Stop And More

When trading forex, being able to enter and exit trades at precisely the right moment is critical to success. To do this, forex traders rely on different types of orders that allow them to specify exactly how they want to buy or sell a currency pair.

In this comprehensive guide, we will explain the most common forex order types, including market orders, limit orders, stop orders and more advanced orders. We will outline how each order works, the advantages and disadvantages, and in which situations you might use them when trading currencies.

Introduction to Forex Orders

A forex order is an instruction from a trader to their broker to buy or sell a currency pair at a specific price and time.

The order type determines how it will be executed. For example, you can specify an exact price you want to enter or exit at, or have your order trigger automatically when the market reaches a certain level.

Understanding the different types of forex orders at your disposal is essential to employ savvy trading strategies. The right order can help you get into a trade at the most opportune moment and manage risk. The wrong one can result in missed opportunities or unnecessary losses.

Below we explain the most common types of forex orders:

  • Market Orders – Execute immediately at current market prices
  • Limit Orders – Trigger when price reaches a specified level
  • Stop Orders – Activate when price hits a preset stop level
  • Take Profit Orders – Close trade at a profitable price target
  • Stop Loss Orders – Close trade at a set loss amount
  • Trailing Stop Orders – Stop loss follows favorable price move
  • Entry Orders – Enter new trade when price hits entry level
  • One Cancels Other Orders – If one order fills, other is canceled
  • If Done Orders – Place secondary order after first is executed

Now let’s look at each of these forex order types in more detail.

Market Orders

A market order is the most basic type of forex order. It instructs your broker to execute a trade immediately at the best available current market price.

How Market Orders Work

When you place a market order, your broker will fill it as promptly as possible at the present market rate. This means you don’t have direct control over the entry or exit price.

For example, if the EUR/USD current market rate is 1.1200/1.1202, a market order to buy EUR will be filled at or very close to the 1.1202 ask price. An order to sell EUR would execute at or near the 1.1200 bid price.

Market orders are executed almost instantly, making them the quickest way to enter or exit a forex trade. This speed and certainty of execution are the main advantages of market orders.

Advantages of Market Orders

  • Immediate execution – Order fills right away at next available price.
  • Guaranteed fill – Market orders are rarely rejected.
  • No monitoring required – Set and forget.
  • Quickly capitalize on news/events – Rapid order entry to capture price moves.

Disadvantages of Market Orders

  • Less exact entry/exit price – You get the prevailing market price at time executed, which can vary.
  • Increased slippage – Price difference between expected and actual fill price. More risk in volatile markets.
  • Doesn’t work for all strategies – Some trading strategies require more precision.

When to Use Market Orders

Market orders are best suited for traders who want to get in and out of positions quickly. They are ideal when you want to:

  • Enter a trade on breaking news that will cause the market to move fast.
  • Close a trade quickly rather than try to get the best possible exit price.
  • Buy or sell at the current price without waiting for a specific entry level.
  • Trade news events where execution timing is critical.

Overall, market orders are the simplest form of trade order. They provide an instant fill but lack price control.

Limit Orders

A limit order allows you to specify an exact price you want to buy or sell at. The order will only execute if the market price reaches the limit price.

How Limit Orders Work

With a limit order, you set a price threshold that the market must reach to trigger a trade. The order will sit patiently until the limit price is seen.

For example, you want to buy EUR/USD at 1.1300 because you think this represents good value. You place a limit order to buy at 1.1300. Your order remains inactive until the ask price from your broker reaches 1.1300, at which point it is filled.

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Similarly, if you wanted to lock in profits on an open EUR/USD long position at 1.1500, you could place a limit order to sell at 1.1500. The order would execute once the bid price hits your take profit price.

You can set time-in-force options on limit orders, such as “good till cancelled”, so they persist until filled or cancelled. Limit orders give you price control versus market orders.

Advantages of Limit Orders

  • Enter/exit at desired price – Gain price certainty within a threshold.
  • Control trade entry and exit – Initiate trades at technically significant levels.
  • Can be used for advanced strategies – Such as breakouts or setting up “buy low/sell high”.
  • Remain active until triggered – Persist until price meets limit level.

Disadvantages of Limit Orders

  • May not get filled – No guarantee limit price will be seen, order sits open.
  • Require more monitoring – Have to watch price action to see if limit is reached.
  • Price can gap past limit – Market may move through limit price quickly.
  • Less speed – Conditional on market reaching your limit price first.

When to Use Limit Orders

Limit orders give you greater precision over trade entry and exit prices. Use them when you want more control than a market order. Ideal situations include:

  • Trading breakouts – Place entry order just above key resistance levels.
  • Buying dips or selling rallies – Set orders at perceived areas of value/resistance.
  • Taking profit at a specific price target – Lock in gains with a limit sell order.
  • Placing stop losses – Use a stop limit order to exit with minimal slippage.
  • Executing advanced strategies like scaling in to trades.

The ability to specify an exact price makes limit orders a key tool for forex traders. But they come with the risk of non-execution if your limit isn’t reached.

Stop Orders

Stop orders become active market orders when a certain price level is reached. They help manage risk and lock in profits when the market is moving quickly.

How Stop Orders Work

A stop order is dormant until the market price crosses a predefined trigger price, at which point the order becomes a live market order.

The two main types of stop order are:

Stop Loss Order – Triggers when price drops below a level, used to limit losses. E.g. Stop loss to sell EUR/USD at 1.1000 if currently long at 1.1200.

Stop Entry Order – Triggers when price rises above a level, used to enter new trades. E.g. Buy stop order for EUR/USD at 1.1300 to trade a breakout.

When the stop price is reached, the order is submitted to the market as a market order. This means it will fill at the next best available price once triggered.

Stop orders are a form of risk management tool. They allow you to automatically close losing trades at a predefined stop loss level. They also let you enter breakouts when momentum accelerates.

Advantages of Stop Orders

  • Automatic order execution – Activates independently to close or open trades.
  • Ability to lock in profits – Use stop sell orders to take profit when price hits target.
  • Helps manage losses – Stop loss exits trades before large losses occur.
  • Lets you trade breakouts – Stop entry orders activate on price break past key level.
  • Hands free risk management – Set and forget stop loss orders.

Disadvantages of Stop Orders

  • Risk of slippage on trigger – Market gapping can lead to fill price difference.
  • Stop hunting – Price spikes can activate stop loss prematurely.
  • Requires constant adjustment – Have to adjust stops as price fluctuates.
  • Can get triggered early – Normal price volatility may activate stops frequently.

When to Use Stop Orders

Stop orders are extremely useful for forex traders looking to manage risk and trade momentum. Ideal situations for stop orders include:

  • Automatically closing trades at a predefined stop loss price.
  • Setting a trailing stop loss that follows behind favorable price action.
  • Entering new trades on breakouts when key levels are breached.
  • Taking profit when price reaches a target – use stop sell orders.
  • Trading news events by placing stop entry orders around key technical levels.

Overall, stop orders give you hands-free control over your forex trades. With the proper stop loss management, they are an invaluable risk reduction tool.

Take Profit Orders

A take profit order automatically closes an open trade once price reaches a predefined profit target level. It locks in gains from winning trades.

How Take Profit Orders Work

With an open trade, you set a take profit order at a price level above your entry price where you want to close the position and realize a profit.

For example, you buy EUR/USD at 1.1200 and want to exit with a 50 pip profit at 1.1250. You would place a take profit order to close your long EUR/USD position at 1.1250.

Once the price hits your take profit trigger, the order becomes a market order and closes the trade at the next best available price. This crystallizes your open profit.

Take profit orders are commonly used in conjunction with stop loss orders to manage both upside and downside risk.

Advantages of Take Profit Orders

  • Locks in profits – Closes trade automatically at predefined profit target.
  • Disciplined exits – Removes emotion from closing successful positions.
  • Risk management – Exits trade with profit before market reverses.
  • Flexibility – Can be used on any time frame or strategy.
  • Hands free – Set and forget. Order executes independently.

Disadvantages of Take Profit Orders

  • Caps profit potential – Trades closed early may miss further gains.
  • Requires adjustment – Profit targets need to be moved to lock in more profit.
  • Risk of gap through target – Price couldgap past take profit level quickly.
  • Less controlMarket order fill means minimal precision on exit price.
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When to Use Take Profit Orders

Take profit orders provide an automated method for realizing gains from winning trades. Use them in situations where you want to:

  • Exit trades at a predefined profit target or risk/reward ratio.
  • Systematically scale out portions of a profitable position.
  • Protect open profits once a technical or price objective is reached.
  • Close out breakout trades after initial profit target is hit.
  • Lock in money on high probability trading opportunities with clear profit goals.

Overall, take profit orders help implement solid exit management and enforce trade discipline.

Stop Loss Orders

A stop loss order closes out a trade at a predefined loss amount if the market moves against you. It is a form of downside risk protection.

How Stop Loss Orders Work

A stop loss order specifies an exit price below your entry point to cut losses on a trade. It automatically closes the position if price drops to this level.

For example, you go long EUR/USD at 1.1200 and place a 50 pip stop loss at 1.1150 in case the trade moves against you. If the price declines and hits 1.1150, your stop loss triggers, converting to a market order that closes the trade.

Stop losses are typically used in conjunction with a take profit order to manage both upside and downside risk.

Advantages of Stop Loss Orders

  • Limits losses – Closes trade at predefined loss amount before greater losses occur.
  • Adds discipline – Removes emotions from closing losing positions.
  • Mandatory risk control – Forced automatic exits at set loss levels.
  • Works on any instrument – Stocks, forex, futures, options, etc.
  • Hands free exits – Stop is triggered automatically if price hits level.

Disadvantages of Stop Loss Orders

  • Vulnerable to slippage – Price gaps can lead to bigger than expected losses.
  • Requires adjustment – Have to move stop as price action unfolds.
  • Can be triggered prematurely – Spikes may activate stop loss unnecessarily.
  • Limits profit potential – Closing early could forfeit further gains.
  • Not guaranteed – Swift market moves can gap through stop loss level.

When to Use Stop Loss Orders

Stop losses are essential for risk management across all markets and timeframes. Use them in any situation where you want to:

  • Limit potential loss on a trade to a reasonable amount.
  • Implement risk/reward ratios in your trading strategy.
  • Protect open profits and minimize drawdowns.
  • Trade breakouts but limit risk if the price reverses.
  • Enforce disciplined risk controls on trades with defined chart points.

Overall, stop losses help control downside risk on trades. With the right strategy, they can improve your overall win rate.

Trailing Stop Orders

A trailing stop order is a dynamic stop loss that follows the price as it moves in your favor, locking in profits along the way.

How Trailing Stop Orders Work

With a trailing stop, you set a stop level below the market price that adjusts as the price rises (for long trades). This allows profits to run while still providing protection from reversals.

For example, you buy EUR/USD at 1.1200 and set a 20 pip trailing stop. As EUR/USD rises to 1.1250, your trailing stop will rise to 1.1230, locking in 30 pips. If the price then declines, your trailing stop will close the trade at 1.1230 for a 30 pip profit.

The distance between the current price and trailing stop is defined as the “trailing amount”. Common trailing amounts are 15 to 100 pips on forex.

Advantages of Trailing Stop Orders

  • Locks in profits – Follows price higher to protect open trade gains.
  • Flexible – Trailing stop and distance can be adjusted.
  • Requires less monitoring – Trades have built-in exit strategy.
  • Adapts to market conditions – Moves with price action, not static.
  • Hands free exits – Automatic order submission if stop price hit.

Disadvantages of Trailing Stop Orders

  • Vulnerable to slippage – Gaps can cause stop to fill at worse price.
  • Price spikes can trigger – Volatility may prematurely activate stop.
  • Limits further profits – Stops trade before maximum peak reached.
  • Active management required – Need to constantly adjust stop.

When to Use Trailing Stop Orders

Trailing stops are used to ride out winning trades while controlling downside risk. Useful in situations where:

  • You want to lock in profits during upswings automatically.
  • The trend has strong momentum but possible sharp reversals.
  • You have an open trade with unrealized gains and want to protect capital.
  • The market is choppy and you intend to follow the prevailing trend.
  • You want to avoid having to constantly monitor open profit positions.

Overall, trailing stops let you have an exit strategy that dynamically moves with price. This can maximize profits in trending markets.

Entry Orders

Entry orders allow you to initiate new trades when the market price hits your predefined entry level. The main types are buy and sell stop entry orders.

How Entry Orders Work

Entry orders let traders set up pending trades that spring into action once a certain price is reached.

The two main entry order types are:

Buy Stop – Sets a price above market where long trade is triggered.

Sell Stop – Sets a price below market where short trade is triggered.

When the stop price is reached, the entry order becomes a market order and enters a new trade. This allows taking quick advantage of momentum shifts.

For instance, if EUR/USD is approaching a resistance level at 1.1300, you could place a buy stop order at 1.1305 to go long on a successful breakout above resistance.

Advantages of Entry Orders

  • Enter on momentum shifts – Trade breakouts and break downs.
  • Precise entry points – Enter trades at technically significant levels.
  • Hands free execution – Order automatically triggered.
  • Remain active until filled – Persist until entry price reached.
  • Can fully automate strategies – Robotic entry rules.
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Disadvantages of Entry Orders

  • Higher risk of slippage – Volatility on momentum shifts.
  • Requires combination of orders – Typically used with stop loss and take profit.
  • May never trigger – Price needs to hit stop level first.
  • Vulnerable to false breaks – Price can reverse sharply after triggering.

When to Use Entry Orders

Entry orders allow trading breakouts and momentum shifts. Ideal situations include:

  • Trading price breakouts – Enter on break of key support/resistance.
  • Fading trading ranges – Sell at range highs, buy at range lows.
  • News trading – Place entry orders around forecasts/expectations.
  • Trading technical patterns – Enter on pattern confirmation.
  • Executing breakout pullback strategies – Enter on pullback to breakout point.

Entry orders enable entering new trades based on predefined technical events. This removes subjectivity and makes execution mechanical.

One Cancels Other Orders

One cancels other (OCO) orders combine two entry or exit orders, with one order canceling if the other is

How One Cancels Other Orders Work

OCO orders simultaneously place two linked entry or exit orders. When one order is filled, the other is automatically cancelled.

For example, you want to buy EUR/USD on a break of resistance at 1.1300, but if it declines you want to buy at support at 1.1200. You place a OCO order with:

  • Buy stop order at 1.1305
  • Buy limit order at 1.1195

If price breaks resistance, the buy stop is triggered and the buy limit is cancelled. If price moves down, the buy limit is triggered and the buy stop is cancelled.

OCO orders ensure either one entry or exit order is executed, but not both. They help trade range bound or uncertain markets.

Advantages of One Cancels Other Orders

  • Trade indecision – Capture breakout on either side of range.
  • Contingency planning – Secondary plan if first order fails.
  • Risk management – Close early winners and losers with OCO.
  • Hands free automation – Set automatic triggers and actions.
  • Enforces discipline – Stick to plan without intervention.

Disadvantages of One Cancels Other Orders

  • Higher commission costs – Two orders placed instead of one.
  • Increased slippage risk – Volatility when orders trigger.
  • Complex order management – More moving parts to monitor.
  • Both orders can miss – Price may not reach either level.
  • Potential over-trading – More active order placement.

When to Use One Cancels Other Orders

OCO orders allow smart trade planning for different market scenarios. Useful when you want to:

  • Capture sharp breakouts in either direction.
  • Take profit if limit hit, else cut losses if stop hit.
  • Scale out of trades at multiple predefined levels.
  • Structure advanced entry strategies with backup plans.
  • Automate trading ranges and uncertain markets.

With the right structure, OCO orders give you flexibility to place plans for various contingencies.

If Done Orders

If done (ID) orders are a 2-step order process. An ID order places a secondary “if done” order after the first order is filled.

How If Done Orders Work

The first order must be executed, then the second linked “if done” order becomes active. They allow placing multi-step trade plans.

For example, you want to buy EUR/USD on a break of 1.1300 resistance, with a profit target of 1.1400. You would place:

  • Primary Buy Stop order at 1.1305
  • Secondary Sell Limit ID order at 1.1400

When the buy stop triggers, the sell limit ID order becomes active to lock in profits. The secondary order only enters if the first is executed.

ID orders help traders plan out series of linked or contingent orders for advanced strategies.

Advantages of If Done Orders

  • Automate multi-step strategies – Set primary and secondary orders.
  • ** Stage entries and exits** – Plan exact order sequences.
  • Smart scaling out – Close portions of trade at various levels.
  • Manage position sizes – Pyramid/average in or out of positions.
  • ** No monitoring required** – Walk away once orders set.

Disadvantages of If Done Orders

  • Complex order management – More parts that require monitoring.
  • Increased slippage risk – Each order leg has slippage threat.
  • Need to adjust orders – As price moves, orders may need changes.
  • Secondary orders delayed – Waiting for first order can slow entries.
  • Order execution uncertainty – Each leg might not get filled.

When to Use If Done Orders

If done orders allow intricate multi-step trade execution across all markets. Useful for:

  • Breakout strategies – Stop entry, profit target, stop loss sequence.
  • Fading trading ranges – OCO buy low/sell high with profit targets.
  • Position scaling – Scale in on momentum, scale out at targets.
  • Advanced risk management – Various linked stop losses, profit targets.
  • Automating complex strategies – Contingent trade plans without monitoring.

The conditional trigger of the secondary “if done” order lets traders set up detailed trade plans across multiple steps.

Conclusion

Understanding order types is a vital skill in forex trading. The right orders allow you to precisely execute trades based on your strategy and market conditions.

Market orders provide instant execution but lack price control. Limit orders offer price precision for entries/exits within defined thresholds. Stop orders help manage risk by triggering trades automatically when price levels are hit.

Other advanced order types like OCO, ID and trailing stops allow multi-step position management. By mastering the various forex orders, you gain greater control over your trading.

The optimal order for each trade depends on factors like volatility, trend, strategy type, timeline and personal risk tolerance. With practice, traders learn to utilize the order types that best fit their trading plan.

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About Amelia Clarke

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