Types
of Orders in Currency Trading
These are the
orders that can be placed when trading currencies online or on the
phone. In our free currency
trading training, we teach our customers how to use these
orders properly when trading currencies online.
Market Orders
A market order
is an order to buy or sell a currency at the current market price.
When placing a market order, the currency trader specifies the currency
pair he wants to buy or sell (EUR/USD, USD/JPY, etc.) and the number
of lots he is interested in buying or selling. The currency trader
will pay the Ask price when buying and the Bid price when selling.
A market order
is the easiest and simplest order to place when trading currencies
online. With our single-click online currency trading platform,
to buy, the trader will simply click a button labeled "BUY"
and to sell, a button labeled "SELL." Thus, with a single
click of the mouse button, a currency trader can buy and sell currencies
almost instantly.
When placing
a currency market order over the phone, the same situation described
above applies. A trader will ask the dealer to buy or sell a specific
number of lots of a given currency after obtaining a two-way quote
from the dealer. To learn more about currency quotes and market
orders, read "How to read a
currency quote."
Limit Orders
A limit is an
order to buy or sell a currency at a specified price or better.
In a limit order, the currency trader not only specifies which currency
he wants to buy or sell, but also at which price he wants to do
so. For example, if a trader places an limit order to buy 2 lots
of EUR/USD at 1.1310, the order could only be executed at an exchange
rate equal to 1.1310 or lower (which is better for a buyer).
When placing
a limit order, the trader also specifies the duration for which
the order is to remain active while it is not executed. Look at
the "Other Order Parameters" section below
for more information.
Stop Orders
The stop order
(also known sometimes as the stop loss order) is an order that is
activated when a specified price is reached. A stop order becomes
a regular market order when the exchange rate reaches a specified
level. Stop orders can be used to enter the market on momentum or
to limit the potential loss of a position. Stop orders are extremely
important in foreign currency trading and should be used by all
traders that want to participate in the currency markets. Just like
for limit orders, when placing a stop order a trader must specify
for how long that order is to remain active.
Example of
using a stop order to protect a position: A currency day trader
buys 100,000 (1 lot) of EUR/USD at 1.1305 in anticipation of an
expected 80 pip rally in the euro. In order to protect himself from
an unmanageable loss, the trader places a stop loss order 1.1285
(20 pips below the current price). This way, if the euro drops instead
of rises against the dollar, the trader's loss is limited to 20
pips ($200). In our free currency
trading training, we teach our customers how to set proper
stop losses in their trading.
Example of
using a stop order to buy on momentum: A currency trader expects
the US dollar to rally versus the Japanese yen, but is hesitant
to enter a buy order because the USD/JPY is getting close to a short-term
resistance at 118.00. The trader instead places a buy stop order
10 pips above the resistance level. His stop is thus placed at 118.10.
Unless the USD/JPY goes to 118.10, the currency trader's order won't
be activated. By doing this, the trader is waiting for the USD/JPY
resistance level to be broken before entering the trade; in other
words, he is waiting for the upward momentum on the dollar versus
the yen to be confirmed before buying.
OCO (Once
Cancels Other)
An OCO order
is the simultaneous placement of two linked orders above and below
the current market price. If either one of the orders is executed
in the specified time period, the remaining order will automatically
be canceled.
Example:
The price of the EUR/USD is at 1.1340. A currency trader wants to
buy 200,000 (2 lots) if the rate breaks the resistance at 1.1395
or wants to sell short if the price breaks the support at 1.1300.
The trader can then enter an OCO order made up of a buy stop order
at 1.1405 (10 pips above the resistance) and a sell stop order at
1.1290 (10 pips below the support). If the EUR/USD breaks support
and gets to 1.1290, the sell stop order will be executed and the
buy stop order at 1.1405 will be canceled. If instead the EUR/USD
breaks resistance and reaches 1.1405, the opposite will take place.
Other Order
Parameters
When placing
any type of order (except a market order), a currency trader needs
to specify a duration of time for which that order can remain active.
If the order is not executed in the specified amount of time, the
order is canceled. The two options below are available to customers
of Currency Trading USA.
Good till
Canceled (GTC): A GTC order remains active until it is canceled
by the currency trader or until the order is executed. It is the
trader's responsibility to cancel a GTC order.
End of Day:
The order remains active until the end of the trading day (5:00
PM EST), unless it is executed or canceled by the trader.
Practice
placing currency orders live - sign up for a live 30-day free demo
of our currency trading software...
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