You have already done your analysis on the Forex market, found a good broker like CAPEX.com, and are ready to start trading. The next thing you need to do is to place an order with your broker. So, what is an order?
An order is an instruction to your Forex broker telling them how much of a specific currency pair you want to buy or sell, and at the time you want the trade to be executed. There are various types of Forex orders which determine when and how you enter and exit a trade.
It is essential to understand the differences between these Forex order types to maximize your profits. There are two main types of orders in the Forex market: market order and pending order.
Forex Market Order
This type of Forex order is an instruction to your Forex broker to execute your trade instantly at the current prevailing market prices. Since the Forex market is highly liquid, a market order is always completed immediately.
Forex market orders are either buy or sell orders.
\Your Forex broker provides you with the ask and bid price. If you want to buy a currency pair, your trade will be executed at the indicated “Ask” price. If you are selling a currency pair, your trade will be instantly executed at the suggested “Bid” price.
Forex Pending Order
When you place a pending order in the Forex market, you are instructing your broker to execute your intended trade at a future time. The pending order can only be accomplished if certain pre-set conditions are met in the Forex market. Once prices reach their support and resistance levels, the pending orders in the Forex market aid traders to open a position. Therefore, you won’t have to continually keep monitoring the market to wait for your trade to be triggered.
Pending orders in the Forex market consist of limit and stop orders.
Forex Limit Orders
Every Forex trader wishes that they could open a trade a specific price or better. The Forex limit orders enable you to do just that! With limit orders, you can pre-set when to enter and exit the trade.
A Forex limit order has a buy limit and sell limit orders.
Buy Limit Order
It is an order to your Forex broker to buy the specified currency pair when the price reaches a specific level, which is lower than the current market price.
In this example, the market price for EUR/USD is1.1757. When you place a buy limit order, you select a price lower than the market – in this case, 1.1653. When this price, or lower, is reached, your trade is executed.
Sell Limit Order
It can be said to be the opposite of the buy limit order. Here, you instruct your Forex broker to sell the specified pair at a price higher than the market price.
The market price for the EUR/USD is 1.1758. When you place a sell limit order, you are instructing your Forex broker to sell the pair at a price higher than the market – in this case, 1.1780. If this or higher price is attained, your trade will be executed.
Forex Stop Orders
Like the limit order, the Forex stop order allows you to open a position when the price reaches a specified level. However, with a stop order, your Forex broker will execute your trade at that specific price, not lower or higher. A Forex stop order becomes a Forex market order once the pre-determined price level is reached.
These orders give a Forex trader the chance to first confirm the market trend before opening a position. The Forex stop order is categorized into buy stop, sell stop, and trailing stop orders.
Buy Stop Order
The buy stop order is an instruction to your Forex broker to buy the specified currency pair once the price reaches the pre-set price, which is higher than the current market price. The pre-set price is called the buy stop price.
In this example, the market price is 1.17559. When you place a buy stop order, you are instructing your broker to buy the EUR/USD pair when the price hits the stop price – in this case, 1.17801.
Sell Stop Order
It is an instruction to your Forex broker to sell the specified currency pair once the price hits the pre-set price, which is lower than the current market price. The pre-set price is called the sell stop price.
In this example, the market price is 1.17607. When you place a sell stop order, you are instructing your broker to sell the EUR/USD pair when the price hits the stop price – in this case, 1.17102.
Trailing Stop Order
It is a modification of the buy stop and the sell stop orders. This type of stop order is not used to open a position but as a risk management tool to avoid significant losses of profits on your already open positions. Here is how it works.
Say you have a long position open; the trailing stop is attached at a specified number of pips below the prevailing market price. In this case, if the market trend changes, your position will be closed if the price hits the trailing stop loss level.
Similarly, a trailing stop is placed above the prevailing market price for a short position. As long as the market trend is downwards, the trailing stop will keep trailing the market price. If the market trend changes, your position will be closed out if the price hits the trailing stop.
Various brokers will offer you different types of Forex orders. All the Forex order types mentioned above are provided on trading platforms of CAPEX.com Global Forex Broker. Also, CAPEX.com WebTrader provides extra trading tools such as price alerts. These features help you to monitor the markets without having to always stare at your charts.