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Order types

Knowing which order to place can significantly improve your risk to reward trading forex.

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Types of market orders in forex trading

In forex trading, you can use different types of orders to serve different functions. Depending on the order you choose, you can determine the point at which your order will be executed, decide how long the order can remain active for or select whether an order gets triggered or canceled by another order.

The order window is the sell/buy or bid/ask window on your chart. If you click on buy or sell, the window opens up to give you a ticket like the one below. With this open, you can choose the kind of order you want to place. Let’s go through the different types of market orders and see how they work.

Types of market orders in forex trading

What are market orders and how do they work?

A market order is an order that executes the moment you click the submit button. There is no waiting for any other conditions to be met. You simply fill in the details of the order you want to place and OANDA will fill your order at the next price available.

To place a market order, you must first click on the buy/sell window on your chart. A ticket will open at the default setting of market order. Having decided how much margin you want to speculate with, you can include certain conditions to the order that will instruct your OANDA trading platform when you want to close that order. You will see two windows for take-profit and stop-loss.

See our video on market orders

Our video explains the different types of market orders you can place when you trade with OANDA, together with measures such as placing a stop loss to help with risk management.

How to set a take profit order

Let’s say for example that you want to buy GBP/USD and believe that your trade will safely climb another 40 pips. You can add this value to the take-profit window. Alternatively, you can type in the price at which you want to take your profit.

How to set a stop loss and trailing stop loss

The same applies for the stop loss section, only in this case you are instructing your broker to close your trade at a specified price that will restrict your losses should the trade go against you. You can also add a trailing stop. A trailing stop is designed to lock in profits or limit losses as a trade moves in the direction you want it to move.

A trailing stop will only move if the price continues to move in that direction. As soon as it moves against you, the stop will halt moving. If the market continues to go against you, your stop loss will trigger and close your trade. If the market should continue in the direction you want it to go, the trailing stop will resume moving in the same direction.

The trailing stop is a useful tool to have, especially in a trade with strong momentum to the upside or downside. It is however less useful in a sideways or ranging market when your trailing stop is more prone to being triggered by the whipsaw action of the market.

How does the spread affect my order?

Once you press the buy or sell button, a market order will get you in at the best available market price. If you were to immediately close your trade, you would have to do it at the opposite price. If buying, you would close on the sell price, for example. The difference between the buy and sell price is called the spread and represents a cost of trading. So if the market price for GBP/USD is 1.3333 to buy and the spread is 6 pips, your order would be filled at 1.3333, but the price you could immediately sell at would be 1.3327 (1.3333-0.006 = 1.3327).. Similarly, for a sell trade the order would be filled at 1.3327, but price you could immediately buy back and the close would be at 1.3333 (1.3327 + 0.006=1.3333). So always factor in the spread when looking at current price prior to taking a trade.

Now let’s look at different types of trading orders.

Limit orders

A limit order is an order to buy or sell at a price entered by you, the trader. As before, when you open the order ticket, you will see ‘market, limit and stop’. If you click on limit, you will see a set of windows that require you to fill in certain values for when you want your order to be filled and when you want it to be closed.

Limit orders can only be placed below the market price when buying and above the market price when selling. Whereas a limit order does not suffer from negative slippage (that's to say, you always get your requested price or better), stop orders can suffer from negative slippage, which means you will get either your requested price or worse.

Limit order - Order types

In the middle of the ticket, you will see the price and expiry. For price, you put in the price at which you want your trade to be filled. If you prefer to limit your price to a time period, you would fill in the value for expiry, for example one day (from now). Otherwise you can select no expiry. The take-profit and stop-loss values work in exactly the same way as a market order. Until the conditions you have entered are met, the order is pending and does not affect your account totals or margin calculation. If your order gets triggered, all those values you have provided will attach to your order.

Note: you can always cancel your limit order at any time before it is triggered. If the order isn’t triggered, it is best to cancel it as soon as you can because otherwise it will remain in your account and may be triggered at a later date when the markets are behaving quite differently.

When should I place a limit order?

Let’s say price is moving between two strong levels of support and resistance. You’ve decided you don’t want to enter the trade now, because it looks like price will drop in about an hour’s time. If it does, you foresee that it is likely to head back down to the next strong level of support and then head back up. You decide that if this happens, you would like to place a trade.

The problem is, you don’t want to sit at your computer all morning waiting to see if this will happen. A limit order can help you place your trade now at a specific price and let you see if your theory was correct. This can be done by filling in the price you want to see triggered, together with your trade size, take-profit and stop-loss when you place your order.

If price should drop as you had predicted and reach your price limit, your order will be filled at that price or the next best available price and your order will be live.

Let’s take another example. A couple of green candles on the four-hour time frame are headed north after a heavy drop in price the previous day. This looks good for a buy. But experience has shown you that false breakouts are common after a big price reversal. So rather than taking a market order, you decide to place a limit order at a price that is level with the support line, say 30 pips below the most recently printed four-hour bull candle. Now, if the buyers should suddenly lose heart and the sellers regain control for a short time, you can potentially benefit from entering the trade when the candles retrace to the zone of support, trigger your trade and climb with fresh momentum, giving you a better run up and the chance to make greater profits.

Stop orders

The third option on your order ticket is a stop order. You can opt for a sell stop order or a buy stop order.

A sell stop order is an order to sell an instrument (e.g. GBP/USD) when it reaches a specified price below the current price. As before, you can set the values you want for your order in terms of price, stop-loss and take-profit.

A buy stop order on the other hand is an order to buy an instrument when it reaches a specified price above the current price. You would then put in the value for price, stop-loss and take-profit and click submit.

The main difference between a limit order and stop order is that the limit order will only be filled at the specified limit price or better; whereas a stop will be filled at the prevailing price in the market, and therefore at a price that is significantly different from the stop price. So if the market were to gap up or down in a direction that is unfavourable to your stop order price, you would suffer a loss equal to the difference between your stop price and the opening price of the candle printed at the start of a new trading session.

Upper bound

When preparing to place an order, you can further lock in the price you want by providing values for Upper Bound (situated at the bottom of the order ticket), so that your order is filled at a price that is within the bounds that you want price to respect.

For example, you see an opportunity to buy EUR/USD at 1.1390. You create an order at that price, and by the time OANDA executes the order, the rate has changed to 1.1395. If you had set an upper bound price at 1.1394, the trade order would not be filled.

You can also make use of lower bounds if you are selling: the same process but in reverse.

Key takeaways

  • A market order either to buy or sell a forex pair will enable you to enter the market immediately at the current price available to you
  • You can use a limit order when you wish to place an order that will be executed at a specific price that is either above if selling or below the current market price if buying
  • A limit order allows you to trade when you can’t be looking at your charts because it will be triggered in the future when perhaps you will be too busy to trade
  • A stop order is an order that is triggered when the price of a forex pair moves past a specific price point you have chosen. Once triggered, it becomes a market order that is filled at the best available price
  • A stop order is used to limit losses with a stop-loss, or secure profits using a trailing stop.