Forex Orders Explained (Updated January 2021)

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Placing an order is what all forex speculators must do, provided they want to conduct transactions on the market. When trading on the customized platform of a brokerage, clients are given a wide selection of order types, each of which plays a different role in increasing the win rate. Understanding when to make each type of order will facilitate an investor’s forex trading.

Forex Orders Explained

By definition, orders are requests sent to their brokers with the purpose of opening or closing a position. In other words, orders are a significant vehicle to help forex speculators to enter or exit a trade on a trading platform – mostly MetaTrader 4 and 5. Accordingly, in the client terminal, a trader will place an order that requires his or her brokerage to execute all possible transactions within 24 hours of weekdays. Over weekends or holidays, meanwhile, the trader rarely opens any position as the retail FX market is closed in those times.

Types of Forex Orders

The popular trading platforms now provide different types of orders for the execution of foreign exchange transactions. They function differently as a part of the trading strategy to avoid unexpected losses and increase the possibility of the winning trade. Figuring out the purpose of each type of order and when to use them will help in managing risks effectively.

When learning about forex, you’ll hear about three prevalent types of orders, including market orders, stop orders and limit orders. On a trading platform, however, they can fall into more categories as follows: market orders, pending orders, stop-loss and take-profit orders.

Forex Market Orders Explained

A market order is an offer delivered to the brokerage company to buy or sell a currency pair at the current exchange rate. Normally, currency pairs will be sold at the bid price or bought at the ask price. Stop-loss and take-profit orders must be placed as well when investors make a market or pending order.

Forex Market Orders

In the trading terminal of MetaTrader 4 and 5, market orders are executed in different modes, depending on currency pairs traded and the policies of brokers. They include:

  • Market execution: This order execution mode allows a brokerage to execute market orders at the current price without further discussions with speculators. In other words, sending an order in this mode implies their agreement to open a position at the price.
  • Instant execution: In this mode, an investor also places an order at the current price which is automatically set by the trading platform. However, different from market execution, instant execution permits the broker to reject the trader’s request if the price changes. At this time, the brokerage company will send their client a “requote” which determines the new price for the client’s order.
  • Request execution: In this execution mode, both ask and bid prices of a currency pair have to be requested from the brokerage first. After receiving those quotes which are merely valid for a while, the trader will tap the “Buy” or “Sell” button that has just appeared. In case he or she has yet to decide, two buttons will disappear.
  • Exchange execution: In this mode, the price of financial assets is offered by the current market. This means when the trader opens a long or short position, the order will be delivered to the exchange and priced by this external trading system. Unlike this execution mode, meanwhile, the three mentioned modes enable the broker who functions as a market maker to quote the client’s order.

In the forex market, most brokers empower their clients to place an order mostly on instant execution (for MetaTrader 4) or market execution (for MetaTrader 5) modes.

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Forex Pending Orders Explained

A pending order is a commitment given to the brokerage to buy or sell a currency pair at the pre-specified price in the future. There are four types of orders available in MetaTrader 4, including Buy Stop, Buy Limit, Sell Stop, Sell Limit and two additional order types in MetaTrader 5, particularly Buy Stop Limit and Sell Stop Limit.

Forex Pending Orders Explained

(Source: MetaTrader5.com)

The buy and sell stop limit orders are a combination of two stop orders with two limit orders. Having similar functions as stop orders, stop-limit orders are placed at both stop and limit prices. When a determined stop price is reached or broken through, those orders will activate the buy or sell limit orders.

Buy stop

The buy stop order is placed when the trader anticipates that the market will continue increasing after the predefined stop level is reached and activates the execution of the order. The value of the order must be higher than the current ask price. This seems odd because traders normally want to buy currency pairs at the lowest or best price available in the market. Therefore, this order type is preferred by those who expect the price will break out the resistance level and significantly move up. If the market goes in their expectation, they will profit from this bullish trend.

Sell stop

Contrary to the buy stop orders, the sell stop order is commonly used in the prediction of the continuously bearish trend in the pair value after the preset stop level is touched and makes the order filled. The price of currency pairs is lower than the current bid price. Similar to buy stop orders, this order type is widely employed in the breakout trading strategy. Accordingly, investors figure on the price breaking the support level and going on decreasing, so they will place the sell-stop price in the proximity of this level.

Buy limit

Frequently, a buy limit order is placed at the limit price that is lower than the current ask price. A trader who uses this order type often anticipates an upturn in the pair value after its decline to a specific level. When the price depreciates to the preset limit level, the order will be filled and he will be guaranteed to pay at that price. Accordingly, if the market continues moving in his expectation – in other words, the price recovers, he will make gains.

For example, the ask price of EUR/USD is 1.22173. You expect the price to increase after falling to 1.22073, so deciding to place a buy limit order at the value. In case the price reaches the preset level, the order is filled. However, if this does not happen, the order will not be triggered. Consequently, you will overlook the trading opportunity.

Sell limit

Conversely, a sell limit order is placed at a higher price than the current bid price. This order type is appropriate for those who bet on a drop in the value of currency pairs after witnessing an upward market trend. When the price appreciates to the predetermined limit level, the filling of the order is implemented and guarantees that traders will buy at a lower price in the future.

Buy stop limit

In this pending order, the investor will place the Stop price above the current ask price of currency pairs. When the predefined price is reached, the buy limit will be automatically placed at a lower level called buy stop limit price. Investors will make this order if they speculate on the short-term decrease in the price preceding its recovery.

Sell stop limit

This pending order empowers the trader to place the stop price below the current bid price of currency pairs. When the specified price is reached, the sell limit is automatically set at a higher level which is known as the sell stop limit price. This order type is common for investors who look forward to the temporary rise in the pair value before it drops.

Forex Stop Orders Explained

Theoretically, a stop order is placed to increase the possibility of reaching a pre-specified price, limit the loss of investors and lock their trade in profits. When the price of a currency pair hits the predetermined point, the stop order is executed and turns to the market order.

Speculators can encounter five popular types of stop orders when participating in the currency market. Besides, buy and sell stop orders elaborated in the previous part, other common stop orders include.

Stop-loss orders

The stop-loss order is a useful tool to minimize the trade’s unlimited loss. In the forex market, the price can move in an unprofitable direction, which results in a higher probability of losing trade. So when a market order or pending order is placed, the stop-loss order should be attached to the transaction as well. Generally, the stop-loss level can be set above or below the execution price to avoid losses induced by the unfavorable market movement.

For example, you want to long EUR/USD at the exchange rate of 1.22173. The maximum loss you can bear is 10 pips, so the stop-loss level will be placed at 1.22073.

Trailing stop

Inevitably, the stop-loss level always remains fixed no matter how the price changes. Meanwhile, the trailing stop order is designed to automatically follow the price movement by a trailing amount. This means if the price appreciates, the trailing stop point will move up as well but cannot be reversed back when the price then goes down. This also applies to the bearish trend of the price.

Take-profit orders

Unlike the stop-loss order, the take-profit order intends to protect gains when the exchange rate of currency pairs reaches a specific level. In case the trader plans to open a long position, the take-profit level must be placed above the current bid price. Conversely, those opening short positions have to set the take-profit level below the current ask price. Placing the take-profit order is compulsory when the speculator starts trading. The trigger of the order leads to the complete closure of the position.

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