In order to be a forex trader, you don’t need to trade all the time. Yes, that’s true! You don’t need to be glued to your seat and watch multiple screens, so that you don’t miss an opportunity; rather you need to learn a few order types that will make your life and trade a lot easier. These types of forex orders which you must know about before trading, refers to how you will enter and exit the market, as per the placement of your order.
They help you plan and manage your trading strategy with every piece of information that your broker requires to actually place the order in the market in real time, which mostly includes the entry and exit price, size of the lot and execution type.
Some basic order types that are widely used by traders and brokers in the forex world are mentioned below:
Out of all the types of forex orders, this is the most common and the simplest type. They are also referred as instant-execution orders, because these orders are meant to buy or sell immediately at the best available price.
For example, if the EUR/USD currency pair is currently trading at a bid and ask of 1.3160/1.3162 and you place an order in your trading platform for buying this pair, it will be sold to you instantly at the ask price of 1.3162. Similarly, if it is a sell order, it would be sold at the bid price of 1.3160, as the buyers are willing to take it at this price.
As the name suggests, these orders only become active once the limit is breached. They can be both buy limit order and sell limit order. The buy limit order is placed below the current market price and sell limit above the current market price.
For example, if AUD/ USD is trading at 0.7440, but you expect it to go to 0.7470 and want to go short on it, then simply place a sell limit order and once the price is hit, the platform will automatically execute the order.
Stop orders are similar to limit orders in terms of it being executed once certain conditions are met but are exactly opposite to the mechanism of limit orders. A stop order is used to buy above and sell below the market price.
Taking the previous example of AUD/USD trading at 0.7440 and you believe the pair will break 0.7470 and further target 0.7520, then place a buy stop order at 0.7470. Once this price is reached, your order would be executed becoming a buy market order.
Take Profit Order
A take profit order can be placed under a market order. This order, when placed, is automatically closed by the platform once your specified target price is reached. For example, if you took a position on GBP/USD at $ 1.2300 and expect it to climb to $1.2500 and specify it as your take profit level then once the market hits your price, the take profit order will kick in and automatically close your position with a profit of 200 pips.
Stop Loss Order
These orders are very similar to take profits orders and are placed in order to limit your loss on a certain position. Taking the previous example, if you expect that the price of GBP/USD could fall down to $1.2200 from $1.2300, you can place a stop loss order at $1.2250, giving you a loss of 50 pips instead of a loss of 100 pips had no order been placed.