Different Forex Order Types to Make and Control your Trades
You can use several different forex order types to make and control trades in forex trading. Some orders control both how to enter and how to exit the market. Learning what they all mean can go a long way toward the successful forex trading.
Different Types of Orders
1. Market Orders
Market orders are performed live on the market at the current price. You are telling the broker that you don’t care about the spread as much as you care about entering the market right now.
A market order can be used to open or close a trade at the market price.
2. Limit Orders
Limit orders are those that are used to exit the market in profit. If you are going short, the limit order will be below the market price, and if you are going long, the limit order will be above the market price.
Think of a limit order. Your trade will be closed when the market price crosses the limit order, and profit will be realized to account balance.
3. Stop Orders or Stop Loss Orders
A stop-loss order is also an exit order that will close your trade. This type of order is intended to limit the amount of loss incurred by your trade. A stop loss order closes your trade at a designated level of loss. Stop losses can also be used to lock in gains as your trades progress into profits. Stop losses can be painful when they are hit, but they will keep you in the trading game longer than if they are not used.
4. Entry Orders
Entry orders are those to enter the market at a specified price. It’s nearly impossible to monitor the market every second, and this is why an entry order can be beneficial. If you feel the market may take a specific action such as break through a price that it’s been touching but has not yet been able to break, you would want to use an entry limit order.
When the price crosses the entry limit order, you are in the market. But entry orders can be the double-edged sword.
- The Advantage is that you can enter the market when it moves while you are away or not pay attention.
- The Disadvantage is that the market can touch the entry order and take it negative before you have the chance to evaluate the move.
This is where good risk management practices come into play.
Understanding the different types of stop-loss order and their uses is an essential the basic skill. Take the time to examine them and try them out using a demo account before you take the plunge.