As a forex trader, you should understand the available order types and use the appropriate order type that suits the market conditions and your trading needs. Choosing the appropriate order type will give you better control over your trading, and you will be able to enter the market at a better price. In this article, we will discuss what order types are available to you and how you can use them to achieve success in forex trading.
Types of orders in the forex market
There are important forex terms and glossaries to learn while trading and these terms are usually used during market analysis or by forex communities online. Traders can use the following order types in the forex market:
- Market Order
- Limit Order
- Stop-Loss Order
- Take-Profit Order
- Trailing Stop Order
Let’s discuss each order type in detail to give you a better understanding of order types and how it works in forex trading.
1- Market Order:
A market order executes your order at the best available price in the market at the time you place your order. For example, if you want to buy a EUR/USD forex pair and the market price of EUR/USD is 1.1730, your order will be executed at the market price of 1.1730. If the market price changes to 1.1732 by the time you place your market order, your order will be executed at 1.1732 the new market price.
To execute the market order, you can select the market order from the list of available order types in your forex trading platform. After you select the market order, your order will be executed at whatever the current market price of the forex pair you selected.
2- Limit Order:
With a limit order, you essentially give your broker instructions to execute your order at the specified price or better. Suppose, you want to buy EUR/USD currency pair at 1.1730 while the market price is at 1.1740, you should place a limit order and specify your price of 1.1730. Your order will not be executed until the market price drops to 1.1730 or lower. The limit order allows you to enter the trade at your desired price and not at the current market price that can be high or low.
In the same way, if you want to sell EUR/USD currency pair at your specified price, you can enter a sell limit order which will execute your order at your specified price or better, provided the market price reaches your specified level. However, if the market price does not reach your specified level in the limit order, your order will not be executed, so you should try to enter a reasonable price in your limit order to buy or sell forex pairs.
3- Stop-loss Order
You can place a stop-loss order to exit your trade if the trade goes against you. Many traders use stop-loss orders as their risk-management tool to limit their losses in adverse scenarios. Suppose, you want to buy EUR/USD at 1.1740 and you want to limit your losses in case the price drops, you will have to place a stop-loss order while buying the forex pair. Suppose, you place your stop loss at 1.1710, your trade will be automatically closed once the market price reaches the level of 1.1710, saving you from further losses.
4- Take-profit Order
Take profit order will automatically close your trade at a price specified by you, allowing you to lock in some gains on your trade. Suppose, you want to buy EUR/USD pair at 1.1740 and you also want to exit your position after the price rises to 1.1770, you can use take-profit order. You will enter 1.1770 as your target point in the take-profit order and your order will be sold at 1.1770 when the market price reaches your specified level. This will ensure that you reap your gains automatically when the market price rises to your take-profit point.
5- Trailing Stop Order
Trailing Stop Order is used to limit your downside risk while also locking in some gains during your trade. Suppose, you bought EUR/USD at 1.1740 and you want to limit your downside risk while locking some gains, you can enter a trailing stop-loss order while buying the currency pair.
When the price of EUR/USD moves up, the trailing stop-loss point will move up by the points you specified. Suppose, the price rises to 1.1790, the trailing stop-loss order will continue moving upward with the rising market price and may come to break-even or above, ensuring that your gains are protected while liquidating your position in case of a sudden downfall in the market.
How to use the differenet order types in trading?
As a forex trader, you must be familiar with different forex order types to help you manage your trades effectively. You can try different types of forex orders on a demo account as well, which will help you to execute them later in the real market. Each order type has its own benefit and you can greatly improve your trading once you understand to employ different order types in different market conditions.
Finally, market analysis plays an important role in setting up a successful trading strategy and increasing the profitability of the trading plan. In order to prepare for a successful forex trading journey, it is important to learn forex fundamentals and guidelines.
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