There are various order types when trading in the Forex market. These order types change the way you can buy and sell currencies. If used properly, it can remove a lot of the tedious work needed to protect and lock in profits without sometimes, being in the trading platform.
These order types will be explained below:
Market execution orders & Pending orders
The different types of orders are usually categorized as either a market execution order or a pending order.
Market execution orders are order types to either buy or sell at the current market price. These can be executed quickly with a just few clicks on the trading platform; perfect for when you want to enter and exit the market on the spot soon.
Pending order is another order type for buying and selling at a predefined price.
This order type is placed either above or below the current market price and will be triggered when the price reaches it turning them into market execution orders.
The main advantage of using this order type is that it can be placed in advance should a particular price event occur. This would allow you to trade without being present in the trading platform.
Buy stop and buy limit orders
A buy stop order is a pending order to buy above the current price. This order type can be placed ahead of time to buy at a predefined price if the market trades here. With the price range identified, you could put a buy stop pending order just above the boundaries of the price range.
A buy limit order is a pending order to buy below the current market price. Traders usually use this order type when they anticipate a drop in price and later bounce higher. You could place this order type at the lower boundary of a price range or anywhere below the current market price.
By placing this order type, you can execute a long position at more favorable prices, and you don’t have to be present at your trading platform to trade.
Sell stop and sell limit orders
A sell stop order is similar to the buy stop order but inverted. This order will execute a sell order below the current market price. This order type can be used in conjunction with the buy stop pending order to participate in any potential move the market is heading towards.
A sell limit order is another pending order that you can place above the current market price to open a short position in the market. Just like the buy limit order, this order type can be used around the upper boundaries of price ranges if you expect the price to bounce and later resume to trade lower.
Again, this order type does not require you to be present on the trading platform.
Stop-loss orders
A stop-loss order is another pending order which reverses the original transaction. Its primary purpose is to stop further losses if the price moves against you.
It would be highly beneficial for you to use this on all your deals to manage and limit risk.
Naturally, stop loss is placed at a price below the current market price for great deals and above the current market price for short sales.
You can also use this to protect your profits. As the price starts moving in your favor, you can modify the stop loss to reduce your risk. Then, by changing the stop loss at a better rate than the entry price, you can lock in some profits even if the price will start to move against you.
You do not have to place a separate pending order as a stop loss. This order can also be entered at the time you have opened a deal or by modifying the agreement after it has been opened.
Trailing stop-loss orders
A trailing stop-loss order works like a stop-loss order, except it adjusts itself automatically according to the direction of the price movement in your deal.
This stop order trails the current market price by a predefined number of pips or points and only moves in the direction of your trade.
If the market price retraces and starts moving against your deal, the trailing stop loss will remain in its last position and will close your deal once it is triggered.
This can help reduce risk and lock in profits as long as the price keeps moving in your favor.
While the order type does its work automatically, you can also manually trail a stop-loss after the price puts in a relatively high or low. This will provide more control as you can make adjustments based on the underlying price structure of the market instead of a fixed number of pips.
Take profit orders
A take profit order is a pending order to take profits at a predefined objective and works inversely to a stop-loss order.
Take profit orders that must be set at the price objectives you are aiming for.
Take profit orders to allow you to close deals and take in profits without being present in the trading platform. Just like a trailing stop-loss order, the take profit order can automatically close a deal when the price reaches its objective.
However, you should always calculate the potential profit objective before opening the deal. This will enable you to determine whether you should take a trade opportunity or not.
Bottom line
Trading can be challenging at first glance, merely practicing opening, closing, and modifying deals on a demo account can help you go far and thriving as a Forex trader. With a demo account, you could quickly familiarize yourself with the trading platform and how the order types work without risking any real funds.