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Types of Orders in Forex Trading

Aug 18, 2007
When your broker buys or sells currency for you, he or she is "executing" an order.

You can place different types of orders with your broker, depending on what you want to do, your situation, analysis and goals.

These are the most common types of orders your broker can place for you:

Market Orders

This is the simplest kind of order and is the most common type used in day-trading. Simply, a broker places a market order to buy or sell a currency at the current market price. A trader places a market order by determining what type of currency pair he wants to trade, plus the number of lots he wants to trade.

For the most part, you should be able to execute very quickly, just by clicking your mouse. Your order should go through almost instantaneously, at the price you requested.

Limit Orders

You use a limit order to buy or sell currency when the currency reaches a particular price. For example, you might see that USD/JPY is currently trading at 117.50, with the price on a downward trend. Your analysis shows that it should go to about 117.25 and then start coming back up.

Instead of waiting for it to drop to 117.25 and then placing the order, you can place what's called a "limit order" at 117.25. What will happen is that the order will be placed when the currency hits that price, automatically and without your having to sit around and wait for it to drop there.

Now, if your analysis is off and the price only goes to 117.30 before it starts coming back up, the trade will not be executed at all. It must hit 117.25 before the trade executes, with this type of order. In this case, the order is usually canceled at the end of the day if it does not execute.

Stop-Loss Orders

Experienced traders usually use stop-loss orders to help minimize losses.

If, for example, you expect the price of a particular pair of currencies such as GBP/USD to go up, you can place a buy order at 1.8255 and a stop-loss order at 1.8235. However, if your analysis is incorrect and the price goes to 1.8185,a stop-loss order can protect you by automatically selling at 1.8235. Therefore, instead of losing 70 pips, you only lose 30 pips.

OCO

"OCO" stands for, "One order cancels the other order". What this means is that two orders are placed with prices both above and below the current price. When one trade goes into play, the other cancels.

For example, if the price of USD/CHF has been staying around 1.2435 for some time and you have a feeling it's going to change soon but you're not sure which way it's going to go, you place an OCO order to buy at 1.2445 or alternatively, to sell at 1.2455. This way, your trade takes off as soon as the currency goes one way or the other. One trade is canceled as soon as the other is executed.
About the Author
Visit Online Trading Books, Tips and Advice to find more great information about online forex trading . Besides a large selection of free educational articles you can also find powerful books about online trading in general.

Other Resources:
123OnlineCurrencyTrading.com - Forex Trading Directory
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