Although many of you might be familiar with the order types in forex trading, I will try to make a summary and list all of the major order types. The orders nature depends on the brokers’ conditions and their execution. It is probably the most important factor in trading in general. For those of you who are not familiar with the Forex market, check this source on what is forex trading – it clarifies the main aspects of the forex trading quite well.
After you read this article let me know if it was useful to you? Will it contribute to your trading experience?
The Market Order
It looks simple and straightforward – you place the order with your broker and it executes it.
However, there are certain factors affecting how is your order executed. If your forex broker is a market maker, it will aggregate your and other traders’ orders and will execute it at a price slightly different than the market price. Depending on its execution policy you may receive requites and slippage during news. Sometimes the best way of checking this is by practice. I don’t mean a practice account of course because everything looks perfect there. The real execution is seen when you trade life. In all cases read well your broker conditions.
The limit order
Limit or stop it is all the same. You specify a price to be achieved in the future and if this price is present the broker executes your order. There might be several limitations in executing those orders though.
For instance some brokers apply minimum amount of pips to place your order at. Thus if EUR/USD is around 1.2700 you might be able to place your stop at 1.2680 which is 20 pips distance. Also there is another factor to be considered – either stop or limit there is no guarantee that your order will be executed at the specified price because:
- When the price is reached it moved too fast and the broker was able to execute it at the next price level.
- There was a gap between the previous closing and current opening of the market (this happens with CFD trading)
You can avoid the 1st scenario by paying additional premium to the broker to execute the stop/limit with a guarantee. There is nothing you can do in the second case.
Placing stop and limit is a good practice especially if you are a new trader. Those can be perceived as your trade boundaries and if you don’t have them it is a lack of discipline. Even if your stop is reached and the market recovers afterwards, you shouldn’t be angry about it because you executed your trading plan. When you have rules you must follow them.
The OCO order
One cancels the other, as the name suggests this type of order cancels another one. For example in MT4 if you place Take profit and Stop loss and either of them is executed this automatically cancels the other. With some platforms this is not true and you should be extremely careful to place OCO order instead of just stop and limit. The reason for that is because if one of the levels is reached the other order still remains active. Your stop loss is hit and then when the price reaches your limit level you will end up with a second order although you exited this trade with the stop order. Therefore, if you see an OCO order, use it for your stop and limit levels (at least).
Some brokers offering STP (Straight Through Processing) execution may apply different conditions for their STP orders. The reason is simple – since they cannot guarantee the execution because the order is sent elsewhere, they just inform you that the price may differ significantly. All depends on what agreement the broker has with its counterparty. In this case the only positive factor is that the conflict of interest between you and your broker is eliminated.
Other order types
All the orders you might see in different platforms are just derived from the above types. They might be called in different fancy ways but when you just read your forex broker’s terms of business you’ll see that it’s just said in other words. Whatever you plan to trade, make sure you test the execution in different situations as day/night, news releases, different currency pairs and lots volumes, etc. Note everything down and that is how you will know better how your forex broker executes your orders.
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2 thoughts on “Type of orders in Forex Trading”
Great article thanks! I am also wondering what is the Multiply close order in MT4, does it have the same conditions as “aggregated order” I guess I should read broker terms better
Can you clarify a bit what you mean? Do you mean MULTIPLE..not multiply? If so there is certainly a way to close multiple orders. There are scripts you can load into your mt4 platform that will for example close all open orders.
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