Jayden In forex trading, traders can take long or short positions, and which position they take depends on their prediction of market price movements. If they think a currency will rise, they take a long position, which is called “going long”. If they think a currency will fall, they take a short position, which is called “going shorting”.
In forex trading, currencies appear in pairs, with one currency being bought and the other one sold at the same time. This means that when trading, a trader is always long one currency and short the other at the same time.
For example, when a trader predicts that the euro will appreciate against the dollar, he goes long the euro against the dollar. In other words, they believe that the value of the euro will increase relative to the dollar. Therefore, they buy the euro now, so that they can sell it later at a higher price, generating a profit.
The term “order” relates to how you will enter or exit a trade. Here we will discuss the various types of orders used in the forex market. You will want to check which types of orders your forex broker accepts. This is because the types of orders accepted vary from forex brokers.
1. Basic order types
Here are some basic order types that all forex brokers will offer, while others sound less familiar.
The basic order types are as follows.
( 1 ) Market order
A market order is an order to buy or sell at the current market price.
For example, if the current exchange rate of EUR/USD is 1.2140, and you want to buy Euros at this level, then click on the market order on the trading platform, and you will immediately execute a buy trade at the market price.
If you have ever traded on shopping sites, the above process is like a single click order for online shopping. You decide to trade at the current price, you click on a spot order, and now you have created the position you wish to take.
The only difference between the execution of a market order in forex trading and online shopping is that in forex trading you are buying or selling one currency against another. But in online shopping, you are buying your favourite goods.
( 2 ) Limit order
A limit order is an order to trade at a specific price point in advance. This is an order to buy or sell once the market reaches the “limit price”.
Once the market reaches the “limit price” the order is triggered and executed at the “limit price” (or better). This type of order undoubtedly consists of two essential elements: time and price.
For example, if EUR/USD is currently at 1.2050 and you want to enter a long position at 1.2070. You could sit in front of the display and wait for the rate to reach 1.2070, and then quickly execute a market order when it reaches that level.
Another way for you is to place a limit order at 1.2070, then you can leave your computer and do something else. If the price rises to 1.2070, your trading platform will automatically help you to execute a buy order at this price level.
In terms of price, you set up limit order for a specific currency pair, at the position you wish to buy or sell; and in terms of time, you must determine the expiry date of your limit order.
( 3 ) Stop entry order.
A stop-loss order is also a limit order, but it is for an open position that has not yet been closed, and its purpose is to prevent losses from increasing, stop losses in time if the market moves against the position.
The stop-loss order remains in effect until you close the position or cancel the stop-loss order.
For example, if you have bought EUR/USD at 1.2230, and want to limit your losses, you place a stop-loss order at 1.2200. If your long call is wrong and EUR/USD falls to 1.2200, then your trading platform will automatically close your long position at this position based on the stop-loss order. Of course, then you will lose 30 pips.
Stop-loss order is a great option if you don’t want to be in front of your computer all the time, but are worried about losing more money than you can afford.
You can easily set up a stop-loss order on any open positions so that you can do what you want to do.
2. Rarely heard order types
( 1 ) GTC orders (Good ‘Til cancelled)
GTC orders are valid until you cancel them. It is a customer’s order given to his forex broker to buy or sell a currency, usually places at a particular price. Your forex broker will not cancel it for you until you cancel them, GTC order remains in effect until executed or cancelled.
Therefore, it is necessary to remember those GTC orders that you have not cancelled.
( 2 ) GFD orders (Good for the day)
GFD orders are the orders that are cancelled at the end of a trading day, and remain valid until that time. As the forex market is a 24/5 market, the last moment of a trading day is usually defined as 5 pm EST, which is also the closing time of the US market. However, I would still advise you to ask your broker carefully.
( 3 ) OCO orders (Order cancels other)
OCO orders are a mixture of two limit orders and/or stop-loss orders.
Both orders have time and price limits, and are placed above or below the current price level. When one of the orders is executed, the other order is cancelled.
For example, the current rate of EUR/USD is 1.2040. Your idea is to either buy at 1.2095 (as this signal a break of a resistance position) or sell when the price falls below 1.1985 (as this means that the price has broken a support position).
This should be understood as follows: if the price level of 1.2095 is reached, your buy order will be triggered into effect, while your sell order at 1.1985 will automatically expire and be cancelled.
Note: Always check the specific information provided by your broker about your orders, and find out if you have to pay rollover fees, if a position is held for more than one day. Keeping the rules for applying your orders simple and clear is the best strategy.
