Unbiased Forex Broker Experts

Part V. Order types in FOREX

Order types in Forex - Forex School

Commander in Pips: Congratulations, Son, you’ve accomplished very important part of our school and now you understand many important terms that you see in the broker's trading terminal. Furthermore, you are not just understanding it, you know how to calculate it and what they mean.

Today we will discuss the important part of trading - Orders.​

Pipruit: Something like on Amazon.com?​

Commander in Pips: Not quite, more precisely – quite not. Generally speaking orders on market is a possibility to open the trade or close it at occurrence of some particular events. For example, if the quote will reach some predetermined level. So, if you really know what you want – you don’t need to sit in front of your computer and wait for when it will happen. You may place an Order that will do it for you.

Pipruit: Cool!​

Market order and limit order - Forex School
Commander in Pips: Do you remember, in one of the previous chapters you could understand some signs – “S/L and T/P”? So they are used for pointing the levels where your orders have been placed. S/L – stands for “Stop Loss” Order, T/P – “Take Profit” Order. But let’s carefully move step by step.

MARKET ORDER

This is the simplest and fastest type of order. It allows buying or selling at the best available price. The best available price for you will be quoted in the trading terminal. For example, you see the quote for EUR/USD = 1.35286/1.35295. If you want to Buy EUR/USD “at market” then it will be sold you at “Ask” price, or 1.35295. If you want to sell it also “at market” – then it will be bought from you at 1.35286. All that you will have to do is just click the Buy or Sell button (look at the picture below) and your order should be filled at price that was displayed at the moment of clicking. This type of Order is very similar to EBAY “Buy it now”. But here you have an additional option – “Sell it now” also. It’s a pity that EBAY does not allow to you to do that.

Forex trading terminal - Forex School
Press the Buy or Sell button and your order should be instantly filled with the given quote. Take a look – the Broker has already taken care about Bid and Ask price. You can see “Sell” button under the Bid price and “Buy” under the Ask price.

LIMIT ORDER

This type of orders is used when you want to open a position at a better price than the current price. What does it mean “Better Price”? It means that you want to buy cheaper (i.e. below the market) or Sell higher (i.e. above the market). For example, current USD/CHF quote is 1.0830/1.0832. You have made your own analysis and come to conclusion that market could reach the area of strong resistance around 1.0950 and then you expect that market has a nice probability reestablish a downward move from there. So, you want to enter “Short” from 1.0950. That’s fine – as I’ve said you have two ways how to do that. You can sit in front of display and wait for when the market will reach this level or you may place a Limit “Sell” order at 1.0950 and go to the beach, away from computer.

If market will reach 1.0950 or higher, the software will automatically fill your “Sell” Limit order at the best available price. The limit order can’t be executed lower than 1.0950, i.e. at worse price, that was set initially.

The same thing, if you want to buy, say, at 1.0700, while the current rate is 1.0830/1.0832. Then you should place “Limit Buy Order” at 1.0700 and if market will reach 1.0700 or lower the software will automatically fill your “Buy” Limit order at the best available price. The limit order can’t be executed higher than 1.0700, i.e. at worse price, that was set by you initially.

Usually this type of orders is used when trader expects a turning of the market in the opposite direction at some point, because due to this order you are buying (entering Long), when market move down from the current price and you selling (entering Short), when market moves up from the current price. So it means that you expect that somewhere in an area of your order, the market should reverse in the opposite direction.

STOP ORDER

This type of orders uses when you want to buy at higher price or to sell at lower price than the current price on the market. You may think that this is an absurd. Who may want to buy higher or to sell lower? But not everything is so simple. In fact, Stop orders are a very powerful tool and here is why. First of all, a stop order could be used when you want to open a position if the market will break trough some resistance or support level. For example, your analysis tells that if some resistance area may not hold, and if the market will break above it, you expect that this move will continue farther in the upward direction. So, you may place a “Stop Buy Order”. Here is an example:

Suppose that EUR/USD currently is 1.2570, and for a long time stands in some trading range, say, 1.25-1.2620. Your analysis tells, that if market will break out of this area to the upside (i.e. break upwards through the 1.2620 level), then this upward move will continue for some time and in this case you intend to open a Bullish position. So, again, you may sit, look at the display and wait, or you may place “STOP BUY ORDER” at 1.2620. In this case, if the market will reach 1.2620 or higher, the Buy Stop order shifts to Market order and your trading software will automatically execute your Buy trade at the best available price.

If you expect a breakout to the downside rather, and also think that this move will continue after the breakout, then you can place “STOP SELL ORDER” at 1.2500. Here, if market will reach 1.2500 or lower, the Sell Stop order shifts to Market order and the software will automatically fill your Sell trade at the best available price.

As you can see, Stop orders, in opposed to Limit orders, are used for entry, when you expect continuation of some move on the market after reaching the price at which your order has been placed.

Place a trading order - Forex School
Here is a screen for placing an order. See, you can choose what type of order you would like to place. Just below this field – you should point the price “at price”, and then press “Place”. It’s very simple, isn’t it?

Special case of Limit order type – Take Profit Order (T/P)

Although we talk about Limit orders in context of opening a position, i.e. look at them as entry orders, a limit order also could be used for closing the position. As you can see from the name of this order “Take profit” it is used for closing a profitable position, when and if you intend to fix profit. Obviously, that if you have Long position (i.e. you’ve initially bought), you may fix and get any profit, only if current price is above your initial entry point. Hence, Take Profit order will typically be somewhere above your entry point – you want to sell at higher price to fix profit.

If instead, you have Short position (i.e. you’ve initially sold), you may fix and get any profit, only if current price is below your initial entry point. Consequently, your want to have yourTake Profit order be below your entry point – you want to buy at lower price, i.e. cheaper.

In general, you can see that a “Take Profit” order has the same nature as a simple Limit order. It also has to be placed at better price than the current one. The one difference is that Take Profit uses for closing the position, that has profit currently and that you’ve initially opened, while simple Limit order uses for initial enter. Indeed, how you can close something with T/P Order, if you’ve not opened anything yet. When market will reach T/P order that you have placed – software will close your position and fix the profit. We might say that Take Profit order always links to the existing position, while simple Limit order can exist as itself, without any position that has been initially pre-opened.

Special case of Stop order type –Stop Loss Order (S/L)

A Stop Loss Order (S/L) uses for limit your loss from particular trade. As with Take Profit Order, you can understand from its name that the major purpose of this order is to stop your losses at some predetermined level when the market runs against you. This type of order, so as T/P, is used for closing the initially opened position. Other words, S/L can’t exist by itself, without position, because it assigned for closing the position that is already existed. But, as opposed to T/P order, S/L fixes the loss on your position, not the profit.

For example, if you have a Long position on GBP/USD at 1.5420, you may place a Stop Loss order somewhere below initial entry point, for instance at 1.5380. In this case your potential losses will be limited by this level, if your analysis will appear to be wrong and market will run against you. If market will reach this 1.5380 level or lower, then your order will be filled - software will close your position and fix loss at 40 pips. (if order will be executed pips to pips).

When, instead you already have a Bearish position, say, at the same 1.5420 level, you may place a Stop Loss order somewhere above initial entry point, for instance at 1.5490.

As you can see, the nature of S/L order is the same with simple Stop Order. S/L also uses when you want to buy at higher price or to sell at lower price than the initial entry price. And it also uses when you expect the continuation of market move in the same direction, as before the order. Although in the case of S/L order this move will be unwelcome.

There is the same difference with S/L and ordinary Stop order, as with T/P and Limit Order. S/L is linked with existing position and is used for closing it, although with loss.

Our conclusion here - A STOP LOSS IS A MUST.

Stop loss is a must - Forex School
This is the same picture as for Market order type. Here you can see, that software allows you to place S/L and T/P orders simultaneously with opening the new position, because they are exceptionally important. You can place them, even when you are initiating a new position with a simple Market Order.

Special case of Stop order type –Trailing Stop Order

A trailing stop order is another type of stop loss. The major feature of a trailing stop is that it trailing (i.e. follows) your position only in the positive direction of reducing the potential losses. It means that for Long positions it could follow the price only in up direction, for short positions – only in down direction. A trailing stop order never can lead to increasing the potential loss. Also it could be used for conservative protection of existing profit. It will be easier understand on particular example:

Let’s assume that you have entered on the long side of the market, say, on EUR/USD at 1.3040. Initially, you intend to place stop loss order at 1.2990, i.e. 50 pips lower. You may do this with Trailing stop order. Trailing stop places in terms of pips of your potential loss. It calls “Trailing” because it follows the market price at the same distance, that you’ve placed it. In our case this distance is 50 pips below the market. But, as I said, it moves only in the direction of reducing your potential loss.

If market price will increase to 1.31 your stop will automatically move (follow the market) to 1.3050 – the distance of 50 pips holds unchanged. But if then, market will move lower to, say, 1.3060 – stop loss will stay at the same 1.3050. If market starts move down right after the moment of your entering, and moves from 1.3040 directly to 1.3020 – your trailing stop will be also the same – 1.2990.

Remember, Trailing stop never could be lower than initial level that it has been placed at. Trailing stop follows the market at fixed distance, that you’ve initially set, but only in direction of reducing your potential losses relatively to the entry price on your position.

Trailing stop, in fact, after some time could reach the level that is higher, than your position has been opened at. In this case, trailing stop is some kind of conservative take profit order. Not in terms of nature, but in terms of function. For example, if market will reach 1.3200 area, than your trailing stop will appear at 1.3150, although the initial position was opened at 1.3040. See, if market will move down and hit 1.3150 area – you will get profit although this is Trailing stop order.

NOTE: MT4 trailing stops don't engage until your position's profit is at least equal to the amount of your trailing stop. For example, if you set a 20 pip trailing stop, your position must be at least 20 pips in profit before this feature starts to move your stop. This means that you should set an initial stop loss when opening the trade and not count on the trailing stop to protect you if the trade immediately goes against you.

Look at the picture, what it looks like in your trading terminal:

Other types of FX order - Forex School
OTHER TYPES OF ORDERS

GOOD TILL CANCELED (GTC) – in fact, this is not a new time of order, but just a parameter for any type of order, except trailing stop. GTC means that this order remains active until it will be filled or canceled by you. Broker will not cancel the order, at least due to some force-major event, but in this case broker will has to warn you ahead of time.

GOOD FOR A DAY (GFD or GTD) – as it follows from the name, this type of order will be active only for today and expire with the starting of new trading day. Sometimes, you will have an option to set a particular day of expiration of order. Take a look at the picture, see “Expiry” field?

Expiration of order - Forex School
ONE-CANCELS-OTHER (OCO) – this is a compound type of order that may consist of two Limit and/or Stop orders. The major idea of this kind of order is filling of one order cancel the other. How it works… 

Let’s suppose that market stays in the range 1.3050-1.3170 for some time and your analysis tells, that if market will break out from the range in any direction, it will continue move in this direction further. But you do not know definitely in what side market will show the breakout. All that you know is that you want to enter only one corresponding position – Sell, if it will be a downside breakout and Buy if it will be an upside breakout. In this case you can place such OCO order as: STOP BUY at 1.3170 + STOP SELL at 1.3050. AS you remember stop order will be executed if market will hit 1.3170 or higher (in this case you will buy) or 1.3050 or lower (in this case you sell). But you do not need both of them. When one of these orders will be triggered by the market – you do not need the other. You can achieve that by using OCO option. If, for instance, market breaks the range to the upside and you’ve bought at 1.3170 using OCO option cancels the second order – STOP SELL at 1.3050.

The same is for downward breakout. If STOP SELL at 1.3050 was triggered first, and you have entered on the short side of the market, then using OCO option cancels the second order – STOP BUY at 1.3170.

Not all platforms support OCO.

ONE-TRIGGERS-OTHER (OTO) – this type of order does not cancel but place the additional order(s), when the initial order has been executed. For example you intend to enter the market with Limit order. Say, currently EUR/USD market stands at 1.3050, and you would like to enter from 1.3000. At the same time, you would like to add “S/L at 1.2950” and “T/P at 1.3200” orders to this potential position, once your initial Limit order at 1.3000 will be executed. This could be done with OTO option. 

For example, if market has reached 1.3000 level, your initial Limit Buy order at 1.3000 has been triggered and you’ve entered on the Long side of the market, OTO option automatically adds S/L order and T/P to this position. I understand that this is easier to see than to read, so take a look at the picture:

One triggers other (OTO) - Forex School
See, you can place Limit order and simultaneously set T/P and S/L. This, in fact, is OTO.

SOME IMPORTANT THOUGHTS ABOUT ORDERS

1. Usually the basic types of orders are enough for trading. I talk about Market, Stop, Limit and Trailing stop orders. OTO orders now are very popular also, basically, because their using is very simple.

2. Do not hurry with compound orders. Try to move from simple to complicate.

3. Be sure that you completely understand how each type of order works.

4. Consult with the broker about any nuances of order application. Make sure, for instance that broker does not have any additional fees for holding positions or pending orders.

5. You have to achieve full comfort with the broker order entry system.

6. Surely open a demo trading account with broker that you intend to open real trading account with. Use this demo for entering different orders, even absurd ones, and investigate, how the broker and trading software will respond to them. Reach as I said, full comfort with order placing system.

ADVANCED DISCUSSION ABOUT ORDERS EXECUTION

Pipruit: Sir, can I close position prior the moment when my order will be triggered?​

Commander in Pips: Sure. You may close any open position with market order and also cancel any other order that has not been triggered yet at any time. For example, you have placed Limit or Stop order, but after some macro data release market turns in opposite direction. In such circumstances you can cancel them and close or open positions with market orders. Look at the picture – sometimes the broker provides you with specific button for closing a position:

Instant execution - Forex School
You must click the “Close” yellow button in MT4.
Other platforms may allow you to click “Close” or “Sell” to close this order.

Pipruit: I see. Commander, when you’ve talked about different orders you talked some phrases that are not quite clear for me. Specifically:

1. About Limit Buy/Sell orders – “Order will be filled, if market will reach particular level or higher/lower”. And that “Limit order can’t be executed at worse price”.

2. About Stop orders – that when market will touch specified by order price level, “Stop order shifts to market order”.​

Commander in Pips: Son, you’ve asked very important question about order execution. Let’s try to answer it.

1. First, about execution of Limit, T/P and any limit orders, that could be a part of some compound order (OTO, OCO). The advantage of Limit orders is that it never could be executed at worse price, than you specified. For instance, you place Limit Buy on EUR/USD at 1.3210. You will never buy EUR/USD due to this order higher, than 1.3210 – not at 1.3220, 1.3215 or even 1.3211. Only at 1.3210 or lower, i.e. better. Here you can ask – how it possible to Buy at better price? For example, due to some important unexpected World event price jump over your limit order. I mean, that price before the event was 1.3220 and after event 1.3150 for 1 single tick (tick is a trade). Other words speaking – there were no trades between these two, and hence quotes are also has changed abruptly. Before event was calm quote floating around 1.3220 and just after even quotes jumped to 1.3150 area. So, your order stands in between them. In fact, broker has to execute your order at first quote, that is not worse than 1.3210 – your specified order level. I suppose that you will be executed somewhere around 1.3150-1.3160 area. This possible quote jumping calls Slippage.

2. There is a quite another tune with Stop orders and S/L orders. The point is that they trigger differently, compares to Limit orders. Here is how it happens. Let’s take the same level on EUR 1.3210, but now you want to place STOP “Sell” order, no matter what you want to do with it – to enter the market or this is Stop Loss “Sell”. The point is, when the market touches your 1.3210 level or lower (for Stop “Buy” it will be 1.3210 or higher), i.e. at least any single trade at 1.3210 or at any price below 1.3210 has passed, your stop has become a market order. This is what I mean with “shifting to market order” term. This is just how stop order works. Now, when market will jump right to 1.3150 level – it means that not just quote but some trade (i.e. tick) will be done with this new level – your order will be executed at market. “At market” means as market order – at best available quote. What risk does this rule of execution put upon you? Very simple. You initially intend to “Sell” at 1.3210, but, in fact, you Sell at 1.3150. This is additional 60 pips loss (in case of S/L) or worse enter for the same 60 pips. That is a risk that Slippage gives.

Pipruit: My goodness! And how could I check – did broker execute my orders fairly or not? What if he deceives me?​

Commander in Pips: I’m not done yet. Yes, this is a third problem that is directly links with order execution procedure. And here you have to remember, what we’ve talked about the quoting system on Forex and, say, on the Futures market.

Pipruit: Ok, ok, wait a minute. I think I see. As I remember, on exchange traded markets (and futures are traded on exchange) there is a centralized quoting system, so every tick (i.e. trade) fixes in exchange database. So, I can easily prove that there were no trades between falling from 1.3220 to 1.3150. Forex, as I remember decentralized, so we have no ability to check – did particular price take place on the the market or not, because there is no single source of quoting that exists.​

Commander in Pips: That’s right. This fact, in turn, leads us to the conclusion that an FX broker can execute you at very unwelcome price if slippage happens and you can’t prove that this price has not happened in the market at all. I’ll tell you more. If market has low liquidity or high volatility, your FX broker can execute you with solid time lag and may give you the worst price that happens during this time. But now you can see the importance of a quoting system, particularly in terms of orders execution.

Pipruit: So, you mean all brokers will try to cheat me?​

Commander in Pips: I can’t agree with that. There are definitely brokers that exist with solid reputations, that place client interests above their own ones. I will not deny this. But you should understand this risk, and the fact that the Broker has enticement to get some pips sponsored by you. If you will see, that the Market has jumped your Limit 1.3210 price from 1.3220 to 1.3150 with just 1 tick – don’t be surprise, that your order will be filled at 1.3210 and not at 1.3150 how it should to be. Your broker could say that there was this price (1.3210) and you can prove nothing opposite.

The same is with Stop orders. Don’t be surprise if you will get fill not even at 1.3150 but at 1.3145 for example.

By the way, stop orders, even in a calm market could be filled with 2-5 pips slippage. I see that very often.

Pipruit: Thanks, Sir. Forewarned is forearmed.​

Commander in Pips: Exactly. Besides, now you know how are important all parts in FX puzzle – quoting system, brokers, their reputation, slippage and order execution.

Comments

mrVynes
7 years ago,
Registered user
Helo,

It seems that s/l and t/p are part of the order, i.e data brokers or market makers have access to and can act upon. What is to keep me from writing a script for s/l and t/p to be executed client side? And just to make the bigegr picture a little clearer, would it actually be of some benefit to me?

Thanks
Pharaoh
7 years ago,
Registered user
If your broker regularly seems to be hunting your stops by spikes that just kiss them, there are 2 likely explanations.

1. They really are a bucketshop and you need to change brokers.

2. Your stops are a little too close and regular market volatility is getting them.

One option. Put a SL another 30 or 40 pips out and manually close your trades. The reason for that 30 or 40 pip "emergency SL" is that you could lose your connection or step away from your computer the moment some massive surprise hits the market. If you trade without stops, such an event could wipe out your account.
Marky$
6 years ago,
Registered user
Hi Commander in Pips,

Being encouraged by your reply to my last post, I'd like to add my humble pips to rise the MS unquestionable value. :)

In the STOP ORDER paragraph, there is said: "... and your trading software will automatically execute...". To be more exact, your software has nothing to do once you have sent your Stop Order to the broker server. It takes care for your order. And you can turn your computer off and go to the beach like in LIMIT ORDER case. But it's not so important like in Trailing Stop Order case.

I think that Pipruits like me should be aware that turning your computer off when you've put a Trailing Stop Order could be very painful when you come back from the beach. :)
At least at MT4 platform, because this order is executed by client platform, not by server.
So, to not being astonished after coming back from the beach: Where is my profit? Why I lost, but price went in my direction for 150 pips before it had reversed and I had the Trailing Stop set at 50 pips?

Remember Pipruits: It doesn't matter whether you go to the beach or to your Mom just for dinner, if you have put the Trailing Stop order you must left your computer turned on with running transaction software and Internet connection!
Hamza Samiullah
2 years ago,
Registered user
very informative...

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