Order types in Forex Market
The trading orders in Forex are those commands that are given to the broker via a telephone or, as is primarily done today, via a connected computer. The order family is divided into two major groups: market orders and pending orders.
The Forex Market orders
This is the most common type of order.
The characteristic of this order is to be unconditioned, ie when you enter this command, you confirm that you accept, without any conditions, to enter or exit the market at the price that is provided to you at that time by the broker.
Usually this type of orders are used for a “by ear” operation, ie when, being in front of the monitor, you recognize in that precise moment the perfect conditions for opening a positon in the market. A market order is in fact used when you want to perform an immediate purchase at the current market price.
This order is communicated directly to the broker who, without hesitation, will endeavor to give you back an executed order. In the case of forex, that price is what is expressed on the trading platform as the bid or ask price, or what is communicated orally via telephone. This order is then used to immediately open a new buy or sell position, or to close and exit from a position previously opened.
In the case of fast market (it is also said of high volatility) and depending on the characteristics of the broker, you may want to enable the maximum deviation from the quoted price, very useful in those phases of order process that take too long, or during exhausting re-quotes. This function allows you to set a maximum deviation in pips from the initial quoted price, that when you have given the order, to which you are still willing to accept that the buy or sell order is executed.
The Forex Pending orders
Pending orders are also called conditioned orders, because they are executed by the broker provided that certain conditions in the market are met. Obviously the conditions that must be met are those set by the trader.
Among conditional orders there are:
- Stop Loss;
- Take Profit;
- Sell and Buy Limit;
- Buy and Sell Stop.
They are various type orders, of buy or sell, set by the traders and taken over by the broker, who automatically forwards them to the market upon the occurrence of a certain condition. Until this occurs, the order stays resident on the servers of the broker.
The most common use of Pending Orders is the setting of one or more levels of price protection for the operation (stop loss) or profit-taking (take profit), or of market entry at the achievement of certain price levels.
The two categories of pending orders
Pending orders for entering the market are divided into two major categories: limit (LMT) and stop (STP)
The LIMIT Pending Orders (LMT)
The limit order indicates that the trader is willing to buy or sell at a better price than what the market is “quoting” at that time.
It’s also widely used for the automatic exit from a position in profit and in that case it takes the name of Take Profit (TP)
current quotation of the price at 1.2500.
– Sell limit 1.2550 (sell condition at a higher price than the one the market quotes at this time, therefore better for a seller).
– Buy limit 1.2450 (buy conditions at a lower price than the one the market quotes at this time, so better for a buyer).
When you set a limit order, you imagine that the price, before making a move in a certain direction, retraces like a pull back, or that it performs an inversion movement, minor with respect to the main direction of the current trend, for then resuming the movement in favor of the main trend.
The STOP Pending Order (STP)
The Stop order indicates that the trader is willing to buy or sell at a worse price than what the market is “quoting” at that time.
When you enter a stop order, you imagine to enter or exit the market at the breaking of certain price levels (break out). Is much used for the exit from a position, when this comes against you, in an attempt to limit the losses. In this case it takes the name of Stop Loss (SL).
current market price at 1.2500
– Buy Stop 1.2550 (buy conditions at a higher price than the one the market quotes at this time, then worse for a buyer).
– Sell Stop 1.2450 (sell condition at a lower price than the one the market quotes at this time, then worse for the seller).
When you enter a stop order, you imagine that price, once get and broken certain levels, will continue and accelerate in that direction.