When your broker buys or sells a currency for you, it is called “executing an order”.
Depending on your trading system, your objectives, and your analysis of where you think prices are going to go there are different types of orders that you can place with a broker.
Types of Forex Orders
Here are the most common types of orders that any broker should be able to make for you:
A market order is the simplest type of order, and the most common order used in day trading. It is simply an order to buy or sell a currency at the current market price. A trader places a market order by specifying the currency pair he wishes to trade, as well as the number of lots to trade.
With most online brokers this can easily be done in seconds with just a click of the mouse. The order is executed almost immediately at the price shown.
A limit order is an order places to buy or sell a currency when it reaches a certain price. For example, say USD/JPY is currently trading at 117.50. The price has been in a downtrend, and your analysis shows that it will drop to about 117.25 and then bounce back up.
You could sit at your computer waiting for it to drop to 117.25 and then place a market order to buy. Or you can place a limit order at 117.25 and when the price hits that point the order will automatically be executed.
If your analysis is wrong and the price only drops to 117.30 before bouncing back up, the trade will never be executed and it will usually be canceled at the end of the day.
Savvy traders use stop-loss orders to minimize their losses. Say you expect the price of GBP/USD to go up and you place a buy order at 1.8255 with a stop-loss order at 1.8235. Your analysis was way off and the price drops all the way to 1.8185.
The stop-loss order protects you by automatically selling at 1.8235. Instead of losing 70 pips, you only lost 30.
This stands for “one order cancels the other order.” Two orders are placed with at prices above and below the current price. When one trade is triggered, the other trade is canceled.
For example, say the price of USD/CHF has been hovering around 1.2435 for some time. You know its going to break out soon but you’re not sure which way. You place an OCO order to buy at 1.2445 or sell at 1.2455. This way as soon as the breakout starts you can jump on board. The second trade is canceled as soon as the first is executed.
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