When you look at forex trading you need to know about the different forex order types and what they can do. Your forex training should have included the methods of entering a trade, and the different types of orders you can use. Improper use of the different order types can have an adverse effect on your entry and exit points. Forex training really is crucial when it comes to learning how to trade.
The Order Types and Forex Training
The Market Order
This is the easiest and one of the most common types of orders in forex trading. This order is used if you want to send out an order at the prevailing price. In the event that you are purchasing, a market order would achieve the trade at the prevailing ask price. If you would like to sell, the market order would achieve the trade at the prevailing bid price.
The Entry Order
Unlike your market order, this order type will carry out your trade once your currency pair reaches the price that you have set as a target. This type of order informs the system that you wish to purchase the pair at a specified price. If the pair does not reach that price, you are not interested in purchasing it.
The Stop Order
A stop order becomes a market order once the price you have specified is reached. Stop orders are normally used to curb potential losses. These orders can be utilised to enter a new trade, or to get out of an existing trade. When you use a stop order to get into a position, it is termed a buy-stop order. It gives an instruction to purchase a currency pair at the market price once the price has reached the price you specified or higher, which is normally higher than the prevailing market price. If you use this type of order to get out of a trade, it is termed a sell-stop order. It issues an instruction to sell your currency pair at the prevailing price once the price has reached your specified price or lower, which is normally lower than the current prevailing price. Some of the most common methods of use for stop orders include:
- Entering markets when you trade breakouts
- To protect your profits
- To limit your losses
The Limit Order
This type of order is an instruction to purchase or sell your currency at a specific limit price. The order will be filled once the market has reached the specified price or better. A limit buy-order instructs the system to purchase the currency pair at the prevailing price once it has reached the price you specified. A limit-sell order instructs the system to sell your currency pair at the prevailing market price as soon as it has reached the price you specified or higher and if it is higher than the current price. Limit order limit the highest price you are willing to pay when purchasing or it limits the lowest price you are willing to take when selling.
Before you place your trades, you should have an idea as to the point at which you want to take your profits if the trade goes your way. A limit order allows you to do this.