Lesson 4: Making That First Trade

Forex Order Types

Overview

  • Most brokers offer the following order types:
    • Market Orders
    • Limit Orders
    • Take Profit Orders
    • Stop Loss Orders
    • Trailing Stop Orders 
  • Your trading style will dictate the order type that best suits your needs.

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.


To prevent the executed rate from slipping too far from your intended price, OANDA fxTrade allows you to include upper and lower bounds with your market order. If the executed price falls outside these bounds, fxTrade prohibits the execution of the order.

Because of the rapidly changing nature of the forex market, the executed price may differ from the last price you saw on the trading platform. This is referred to as slippage. Sometimes slippage works to your favor, and sometimes to your disadvantage.

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.

A pending limit order has no impact on your account totals and can be cancelled at any time without consequence. If the conditions of a limit order are met however, the pending order is executed and becomes an active market order.

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.

Traders use the term "stopped-out" to describe the situation where a stop-loss closes a position.

Trailing Stop Orders

  • Similar to a stop-loss, a trailing stop can be used to restrict losses and avoid margin closeouts.
  • A trailing stop resembles a stop-loss in that it automatically closes the trade if the market moves in an unfavourable direction by a specified distance.
  • The key feature of a trailing stop is that as long as the market price moves in a favourable direction, the trigger price automatically follows the market price at a specified distance.
  • This allows your trade to gain in value while reducing the amount of loss you are at risk for.
  • For example, if you hold a long position the trigger price will keep moving up if the market price moves up, but stays unchanged if the market price moves down. If you hold a short position, the trigger price will keep moving down if the market price moves down, but stays unchanged if the market price moves up.

This is for general information purposes only - Examples shown are for illustrative purposes and may not reflect current prices from OANDA. It is not investment advice or an inducement to trade. Past history is not an indication of future performance.

Trading FX and/or CFDs on margin is high risk and not suitable for everyone. Losses can exceed investment.