Types of Forex Orders

Typically, brokers will offer the following five Forex order types: market orders, limit orders, take profit orders, stop loss orders and trailing stop loss orders. Personal preference will play a big part in your order type, and so whichever you choose should be informed by your own trading style.

Market Orders

Market orders are executed as soon as they are placed, meaning they are priced based on the current spot, or market, price. The immediacy of market orders also means that, if the the rate of the market moves against your position, you are faced with an unrealised loss. If you were to then close your position in an effort to limit the damage of the movement, this loss would become realised.

Limit Orders

Limit orders give traders the option to buy or sell at prices that neither exceed nor drop below previously agreed upon price brackets, providing more security for traders who don’t employ a trading strategy or style requiring constant monitoring of the markets. A limit order is therefore simply an order to either buy or sell a currency pair once the conditions of the original trade agreement have been met.

Take-Profit Orders

In a similar vein to limit orders, take-profit orders offer traders the ability to have an open order closed automatically once the exchange rate reaches a previously agreed upon level. So, if you were to take a long position, you could make a net gain by using a sell take-profit order, and if you were to take a long position, you may choose to use a buy take-profit order.

Stop Loss Orders

Stop loss orders are typically used as a short-term trading strategy with a preference for a backseat approach to trading. Traders entering into a stop loss order agree upon an automatic sell price with their broker, meaning their trade can be left on something of an autopilot. Longer-term traders will likely avoid frequent use of stop loss orders because they will lock in losses as soon as a market drops below a certain price, and so they limit long-term traders’ potential to evaluate the value of riding out a slight drop in anticipation of a rise in market value.

Trailing Stop Orders

Trailing stop orders are a way of safeguarding your gains by limiting your losses as they move with the market. Trailing stops are like regular stop loss orders, but with the benefit of protecting against large loss should the market continue to move in your favour. This is because, as the name suggests, trailing stop loss orders change depending on the market’s movements. So, if the market is on an uptrend, the trailing stop will continue to rise behind the market price until that price drops below the most recent trailing stop. After this, your trade will be stopped out, leaving you with a nice profit and minimal risk to your capital.

Trailing stops can be useful, but bear in mind that they may not suit day traders because the markets will invariably rise and fall before a trend, and if your stop loss is too tight in this preceding then you will simply be stopped out before you can see any gains.