Forex and CFD Trading Orders
A market order is an order to buy or sell at the current ask or bid price quoted on the market. The buy order may be to initiate a new position or liquidate a previous sell position. The sell order may be to initiate a new position or liquidate a previous buy position.
Here is an example of a market order. The current market price – in this case, for buying US Dollars (Ask price) – is 1.0555 and for selling US Dollars (Bid price) is 1.0551.
Stop-Loss / Limit Orders
Stop-Loss and Limit orders are protective orders that close an open position or future position under certain conditions, namely price.
Stop-Loss Orders are used to limit trader’s losses if the market moves against their position. The trader sets the maximum amount (in terms of pips) that he is willing to lose on a certain trade. When that specified price is reached, the trade is executed.
Conversely, Limit Orders are used to lock in the trader’s profit if the market moves favorably. The trader sets in advance the price at which he wants to close his position.
In the example below, a trade was opened at the market price of 1.0561(buying order). According to the stop-loss order, the position will be closed if and when the price falls to 1.0553. According to the take-profit order, the position will be closed if and when the price hits 1.0565.
These types of orders open a new position only if the market reaches a price specified by the trader.
Entry orders are divided into two varieties: Entry Limit Orders and Entry Stop Orders.
- Entry Limit Orders – Entry limit orders are orders that are placed by traders to enter the market at a more favorable price than the current price. When Buying a currency pair or a CFD, a Entry Limit order will be placed below the current market price. When Selling, a limit entry order will be placed above the current market price.
When placing Entry Limit Orders, the trader expects that the market price will bounce back after reaching the level at which the entry limit order was placed.
- Entry Stop Orders – Entry stop orders are orders that are being placed by traders to enter the market at a less favorable price than the current price. A BUY Entry Stop order will be placed above the current market price. When A SELL Entry Stop order will be placed below the current market price.
When placing Entry Stop Orders, the trader expects that once the market’s momentum breaks through the specified price, the trend’s movement is confirmed and will continue in that direction.
Trailing Stop-Loss Orders
A trailing stop-loss order is a stop-loss order that is set by the trader at a fixed number of pips from his entry rate. The stop loss order is automatically moved as the market price moves, but only in the direction of the investor’s trade.
If you’re Long on the USD/CAD pair at 1.0552 and you set the trailing stop at 30 pips, the stop will initially become active at 1.0522 (=1.0552-0.030).
If the USD/CAD moves higher to 1.0565, the stop-loss order adjusts higher, pip by pip, with the market price and will then be active at 1.0535 (=1.0565-0.030).
If the USD/CAD ever goes down by 30 pips from 1.0565 to 1.0535, your stop will be triggered and your position closed. If the market goes up from 1.0565, your trailing stop will continue to move up in order to lock in additional profits.
One-Cancels-the-Other Orders (OCO)
OCO orders are combined orders with both a stop price and a limit price. When one of the orders is executed, the other is automatically cancelled. OCO orders can be applied to open positions, or they can be used to open a new position.
Say for example a trader believes that the USD/CAD, currently traded at 1.0548/1.0552, will continue trending higher; you believe that should the pair break above 1.0560, it will rise to at least 50 pips. Nevertheless, you expect that prior to this major incline, the pair will retrace to 1.0544. You can place an entry limit at 1.0544, but in case the pair does not hit 1.0544 before climbing higher, you would miss the trade. You then place an OCO order to buy the USD/CAD if it reaches 1.0544 or 1.0560. Of the two, the first bid price to exist in the market will trigger the order: