Forex Education

Order Types

Now that you are ready to pick a broker and you know all the basics it's time to learn what kinds of orders brokers offer. There are different kinds of orders. Some get you into the market directly, others at certain prices. Below is a list of the most commonly available order types and a description of each.

Market Order

This is the simplest and most commonly used order in the Forex market. It is basically a direct entry order. If you want to enter right away at the current level you use a market order. For example if GBP/USD is at 2.0400 and you want to enter long you use a market order, the order is instantly executed and you are in the market. Market orders are usually very accurate but since Forex quotes update by the second sometimes you can be a few pips off from the price you wanted.

Stop Loss

A stop loss order is an order set when a trade is already open to prevent losing too much. Let's say you are long on GBP/USD at 2.0450 and you want to limit yourself to a 50 pip loss. In this case you would set a stop loss order at 2.0400 so if things do go against you it remains controlled. If the trade actually does go bad and the price reaches 2.0400 your platform will automatically close the trade. You can also set it to collect profits. If you are long on GBP/USD at 2.0450 and you want to get 50 pips out of the trade you set a stop at 2.0500. When it reaches that level it will close your trade automatically with 50 pips profit. Sounds useful, doesn't it? Well it is and it isn't. If your broker is a market maker, they can take advantage of the stop loss by manipulating prices. They push it a few pips closer to the stop loss than it actually goes and take you out, then you see the trade go in the direction you had your position. Brokers are not going to target you specifically, however. They target big groupings of stop losses. Check out the fighting market makers section for info on how to avoid being stop hunted.

Limit Order

A limit order is the opposite of a stop order. If you want to enter the market at a certain level that has yet to be reached, you can set a limit order. When that level is reached you will be entered into the market. For example let's say you want to go long on GBP/USD once it reaches 2.0400 but it is now at 2.0350. In this case you would set a limit order at 2.0400 and when/if the price reaches that level the trade will automatically execute and put you into the market. Again brokers can exploit these types of orders. It is less common than exploiting stops but it happens. Check out the fighting market makers section for info on how to avoid being stop hunted.

OCO (one cancels other)

This order type allows you to set two orders and when one is triggered it cancels out the other. For example if you are long on GBP/USD at 2.0400 and you want to close it with 100 pips profit at 2.0500 but you do not want to lose more than 50 pips if it goes bad. In this situation you can set two stop orders one at 2.0500 and one at 2.0350. Whichever one is hit first is executed and the other is canceled. The reason for this is that if you set two normal stop losses and one is triggered the other is left open. If the price then moves to that other stop loss it will act as a limit order and put you back into the market. OCO's can also be use with two limits if you want to go long at a certain price or short at another price.

Parent and Contingent

This order is a combination of a limit order and an OCO, basically the parent order is the entry order and the other two are the OCO. So for example if you want to go long on GBP/USD at 2.0400 but it is currently lower you can set a parent order to enter the trade at 2.0400. The two contingent orders are just an OCO so you would set them as two stops one at 2.0500 for the profit and one at 2.0350 for the loss. The two contingents only activate once the parent is triggered and when one contingent is triggered it cancels the other.