Forex Market: Types of Orders
As you know, Forex markets run 24/7. That is why the monetary value of an open position can change significantly if you do not manage it round the clock. For an average trader it is virtually not possible to do so. This is where market orders come into play. They allow traders to passively manage their open positions and control their changing values. There are several types of orders in the Forex markets.
The most common one in the types of orders in the Forex markets is a market order. A market order is an instruction to buy or sell something immediately at the current price. In fast-moving markets, there can sometimes be a discrepancy between the price when a trader place a market order and the actual price. This is called slippage in market terms. Slippage is sometimes good for investors and bad at other times.
The market order immediately becomes an open position. Therefore, the profit and loss generated by this order must be realized when the position is closed.
Pending order is the type of Forex order that is basically an instruction to execute a buy or sell trade later, at a specified price. You can call it a conditional market order. They eliminate the need to constantly monitor the market. Instead, it allows traders to automate trades for specified conditions. It reduces the need for manual intervention.
There are four types of pending orders:
Sell Limit – an order to sell at a price higher than the current market price.
Buy Limit – an order to buy at a price below the current market price.
Sell Stop – an order to sell at a price below the current market price.
Buy Stop – an order to buy at a price higher than the current market price.
Sell Limit, Buy Limit orders are executed at the price chosen by the trader or at the best price. Sell Stop, Buy Stop orders are executed at the price chosen by the trader, except for cases of price gaps, when the order can be executed at the first price available on the market.
There are two categories of orders, associated with a pending order to open a position – Stop Loss and Take Profit orders.
Take Profit Order
A Take Prodit order is a type of order in Forex that automatically closes a deal when the price reaches the specified profit value in points. A pending order is placed above the current price for purchases and, accordingly, below the current price for sales. After opening, it is possible to change the Take Profit value both manually and automatically.
Stop Loss Order
A Stop Loss order is the inverted version of a Take Profit order. However, traders use it much more often. A Stop Loss order is a pending order that automatically closes a position when it reaches a specified loss level. It is, like Take Profit, the main element of the money management system. Stop Loss can automatically follow the price to break even using the Trailing Stop mechanism.
Trailing Stop Order
The basis of a Trailing Stop order is the mechanism of a Stop Loss order. In this type of market order the Trailing Stop moves with the price when the price moves in a favorable direction. The order guarantees a profit by keeping the position open and following the price in a profitable direction. The trailing stop order does not move in the opposite direction. If the price reverses in a losing direction by a certain percentage, the trailing stop will close the trade at that market price.
There is one more type of orders in the Forex markets, which is dependent orders. With this type of order the trader can place two orders simultaneously. After that the system will execute only one of them – based on the market conditions. One more possibility is that one order can trigger another one in the future. Dependent orders use sophisticated algorithms to execute trades with minimal human intervention.
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