Types of orders in the Forex market
This article covers the following free forex training topics.
- What orders can an investor offer to trade in the market?
- Orders at market prices
- Limited orders
- Stop orders
What are the types of orders in the Forex market?
Let’s imagine an investor planning to start a currency pair, who has not yet opened an account with a particular brokerage firm. He must first consider what kind of financial intermediary services he needs, because the choice usually involves opening an account with a full-service brokerage firm or a “discount brokerage firm.” Some investors may decide that they need the services provided by both brokerage firms.
If the investor pursues extensive consulting or analysis, he or she is likely to ask the brokerage firm for full service assistance. If the investor has made a decision to buy a particular financial instrument, he or she is likely to use the purchase and sale of services from a brokerage firm specializing in the field. The point that every investor should keep in mind is that full-service brokerage firms quote a higher price for their intermediary services.
The method of opening an account is usually as follows. The brokerage firm needs to fill out a specific form, such as a bank account opening form. The form must be completed and sent to the brokerage along with the check. This form is processed by the company’s management and is sent to the investor after a few weeks with account details, including account number. By doing this, the investor can now contact an expert from the brokerage firm and send purchase orders.
As far as types of orders are concerned, there are usually several orders that use them the most – market price orders, limited orders and stop orders.
Order at market prices in the Forex financial market
The first and probably the most popular order is the market price order. If the investor places an order at market price, it means that he has asked his broker to buy or sell the currency pair at the best possible price for a moment. Market orders are always executed. What is clear about them is that these orders may not be executed at the price that the investor prefers or expects.
Let us give an example. An investor intends to buy a certain amount of EUR / USD. He simply contacts the brokerage firm and the telephone expert announces that the EUR / USD is currently trading at a bid value of 1.3471 and a demand value of 1.3474. The investor submits an order to buy 1000 units of this pair to the broker. Shortly afterwards, the broker calls and informs the investor that he has bought 1,000 units worth 1,3477. The value of the pairs seems to increase in the time interval between sending and executing the market order. Of course, if investors were more than buyers at the time, investors should keep in mind that the order could be executed with a smaller amount, such as 1.3470.
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Limited order or limit order in Forex
Limited order is another type that is often used. If sent, this means that the broker either buys or sells a certain amount of units of a certain currency pair at a specified value. If this amount is not within the current market price range, it is usually considered “away from the market” and is recorded in the so-called order book, below other active orders. This means that other investors have submitted their limited orders earlier and all orders registered in this current replacement will be filled.
This is not a rare situation, so every investor should be aware that, in fact, there is no guarantee that limited orders will be executed. Before deciding to use the limited order market, each investor must consider the advantages and disadvantages of performing a “guaranteed” order, which can be different than expected, as well as paying the preferred price, and whether the order will ever be completed. Be aware.
Stop order
This is a conditional order in the market, which is activated in case of trading with the investor at a price predefined by him.
A stop order to buy becomes an order at the market price, if other investors trade at a predefined stop price or higher. A stop order for sale becomes an order at market price if other investors trade at a predefined or lower stop price.
In addition to the three types of orders mentioned above, there are also limited stop orders. Stop ordering means that as soon as the trade reaches the preset price, the order becomes a limited purchase order. Similarly, a sales restriction order means that at the moment of the transaction at a predetermined price, the order becomes a limited sales order.
End orders by sending a cancellation request
Finally, investors can submit so-called “fill in or complete” orders. They are commonly used for futures and option trades, but are also valid for stock trading. These orders are limited in time. For example, if an investor sends a 25-minute “fill or cancel” order, it means that the order will be canceled, unless it is executed within the next 25 minutes.
It may be useful to note that, on the other hand, stock trading also recognizes two other types of orders that are defined by their time period, which are two types of orders: day order and so-called “good until canceled” order.
The order of the day is valid only on the day of delivery. Orders are “OK until canceled” but are more specific. Until the second order is placed by the investor, the broker fills out the submitted order, because it is applicable at any time. “Good until canceled” orders must be approved twice a year, more accurately – every six months. The rules of the stock exchange state that these should be the last working days in April and October.
Later, we will talk a little more about different derivatives, which can be used to trade currency pairs.
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