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. Lets explore the difference between order types in forex as well as the different types of order executions. and how you can use forex order types effectively in your day trading.
What are 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
Lets 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 forex 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 which 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.
If you are in a long position, it is a sell STOP order.
If you are in a short position, it is a buy STOP order.
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, and 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.
To open a position, the following pending orders may be used:
Buy stop: is a pending order to open a long position at a higher price than the current price
Sell stop: is a pending order to open a short position at the price lower than the current price
Buy Limit: is a pending order to open a long position at the price lower than the current price
Sell Limit: is a pending forex order to open a short position at the price higher than the current price
How to use the different 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.
What is order execution in forex？
Order execution is the procedure of activating the buy and sell orders initiated by the traders. What is order execution？ is a common question for investors who are getting into online trading. Initially, it is important to understand that the platform usually conducts several processes when they execute the orders and this includes accepting the order and opening the position for the traders. There are three order execution types in forex markets and with MetaTrader, you need to learn how each of these execution works.
What is The Difference Between Market Execution and Instant Execution？
Instant execution will be executed at the same the price requested by trader while market execution will be executed at the current price offered. In instant execution there will be requotes with update price.
Instant Execution
Forex instant execution is when the order is executed at the exact requested price. The instant execution will be not executed if the current price have had a major change. The forex order in instant execution will not be opened or closed without an action from the trader. In this case of execution, requotes may frequently happen and new price will be offered accordingly. Forex beginners usually prefer this execution type, for whom exact execution is important.
Market Execution
Market executation will be executed at the current price and it is the opposite to instant. This kind of execution is faster and it allows the traders to enter the market immediately since the order will be opened at the current market price. Slippage can be triggered during high volatility and this could be one of the disadvantages.
What is execution speed？ and How fast are trades typically executed？
Execution speed is defined as the amount of time between when the broker receives your order until execution. Typically the average execution speed is 0.1 seconds or less. At AximTrade, the platform technology provides an average speed of 0.04 seconds which is very efficient for traders who are looking for reliable execution in the forex market. Basically, the faster the speed of the execution, the more orders will be executed at the requested price.
Which orders are executed first？
Mainly, the orders will get executed based on the queue in the system and according to the rule of first come first serve. This is a complex process that relies on a combination of factors such as the platform response, execution speed, algorithm efficiency, technology, market conditions, and traders‘ device and connection speed. In contrast, your order won’t be executed until the system executes the trades which have been placed before you.
Initially, forex brokers usually provide sufficient details in their contracts and terms and conditions about how the orders are executed. This is the sort of information you will need to review under the Order Execution Policy once you open a forex account.
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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Original Article: How to Know the difference between Order Types in Forex？
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