It could be very difficult for any trader to be online for constant monitoring most of the time. This could be boon in case the trader is making profits; however, it could be devastating in case of loss. This is a situation wherein forex orders can come in very handy. A forex trade order can be used to sell or buy a currency when the price reaches or falls below the specified price. Forex orders can only be used with predetermined entry or exit price. A significant benefit of using is to limit the investor’s loss or locking in a specific amount of profit.
There are different types of forex orders and understanding the differences between the order types available can be very helpful as it helps the trader/investor in reaching their trading goals. Following are the types of forex orders:
- Market Order
This is the most basic order type. It is executed at the best available price of the currency at the time when the order is received.
- Limit Order
A limit order is an order specified to buy or sell currency at a specified price or better. It can be of two types. A sell limit order is filled at the specified price or higher whereas a buy limit order is executed at the specified price or lower. These orders give flexibility to the trader/investor so that he/she can precisely define the entry or exit point of a trade. However, limit orders do not guarantee entrance or exit from a position because if the specified price is not met, the order will not be executed.
- Stop Order
A stop order triggers a market order when the predefined price is reached. Stop orders are of two types. A buy stop order triggers a market order when the offer price is met and a sell stop order triggers a market order when the bid price is met. Both of them are executed at the best available price based on available liquidity. Stop orders are also called stop loss as they are mainly used to limit downside risk.
- Trailing Stop
A trailing stop is a type of stop order which is set on the basis of a predefined number of pips away from the current market price. A trailing stop will automatically trail the position of the trader when the market moves in favor. However, if the market moves against the predefined number of pips, then a market order is triggered and the stop order is executed at the next available rate depending on liquidity.
Orders are critical tools for any type of trader and should always be considered while planning a trading strategy. The forex order types mentioned above are the most common types of forex orders which can be used by any forex trader entering the trade to keep their profits reasonable and to minimize the amount of loss that can be incurred. Since the trader gets to set his/her own value, therefore they get the freedom to control the amount at which they can bear the losses.
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