Four Main Types of Orders in Forex Market

Four Main Types of Orders in Forex Market

There are many kinds of orders which traders can place to transact in the Forex market, for

making profit out of it.

Market Order

The market order is the most simple and common kind or order. Here, the trader buys

and sells the currency at the rate prevailing in the market at the time of placing the order.

Due to the huge size of the market and the high volatility, trends can reverse any instant,

so people prefer placing orders at the market price to guard themselves against any

adverse trend.

Limit order

In this case, the trader specifies a price at which he may wish to buy or sell the currency.

Suppose a trader has bought GBP against the USD at 1.9710, then he can place a sell

order at 1.9725, when the exchange will execute the order and he will profit from it. The

order will get cancelled if the target price is not achieved during the day.

Stop loss order

Due to the volatility, stop losses are essential. They determine the maximum loss a trader

is willing to suffer. Suppose in the above instance, the risk-taking ability of the trader is

low, then he may place a stop loss at 1.9705, at which level the exchange will book

losses for him, and he won’t be affected by any fall below 1.9705.

 Entry order

Such an order is filled only when certain conditions are met in the market, which the order

specifies. The entry order can be a limit entry order or even a stop entry order.

 Limit entry order

As an example, let’s assume that the current market price for GBP/USD is 1.9705-10.

This implies that the trader can transact at these levels. Here, a trader can put a limit

entry order to sell his holdings at a price more than the market price, say, 1.9715. His

order would be executed only if that price is attained. In the similar manner, he can place

an order for buying at a level of, say 1.9700, and his ‘buy’ order would remain pending till

the price falls to that level.

- Stop entry order

Such an order is generally used when the trader has sufficient grounds to believe that the

currency is trading in a fixed range and believes that it is on the verge of a breakout from

that range. He might want to buy at a price higher than the market price or sell at a lower

price than the market price. In the same example, the trader may go ahead and buy at

1.9720 or sell at 1.9690, where he believes that once these levels are attained, the

currency will only go up or fall further, as the case may be. A trader exercises the stop

entry order only when a trader has reasonable grounds to believe that there will be sharp

movements in the currency rates in the Forex market.