Here’s how to place orders and manage trades when trading forex. There are a number of forex order types that are useful in different circumstances.
Here are the main order types:
- Market buy or sell
- Stop buy or sell order
- Limit buy or sell order
Forex Market Order
Most retail platforms use “Buy” and “Sell” buttons which are used for instant execution (confirmation may be required depending on platform set-up) at the current ask or bid price. Placing a buy or sell at the current market price is called a “market order.”
“Buy” means you’re buying the first currency in the pair, expecting the price to rise on your charts. It also means you’ll be buying at the “ask” price.
“Sell” means you’re selling the first currency in the pair, expecting the price on your charts to drop. It also means you’ll sell at the “bid” price.
You then have other elements to consider when placing a trade, such as position size, stop loss, and profit target.
- Position size or quantity is how much you want to buy/sell, and is determined by a simple formula covered in the linked article.
- A stop loss is an order placed at a price where you know you’re wrong about the trade. Where to place stops is covered in the linked article. The stop loss is protection from excessive losses. If the market moves to the stop loss price the position is closed at a loss. This is so you don’t lose more than is warranted on any one trade. And since the stop is placed with the broker, it’ll execute even if you’re not around or don’t have your trading platform open.
- You can also set a profit target order. A profit target is a price which, if hit, will close the position (or part of the position) at a profit. It’s a price you expect the pair to move to which will give you a profit. A profit target closes your position, if the target price is hit by the market, even if you’re not around or your platform is turned off.
- A stop loss is a stop order and a profit target is a limit order, as discussed below, because these order types are “pending” and waiting to be filled.
Some trading platforms let you pre-program a stop loss and profit target so that when you execute a market order the default stop loss and profit are placed along with it. With other platforms, you’ll need to manually enter the stop loss and profit once you are in the trade. Click to right-click on the trade to edit it, and add in the prices that you want your stop loss and profit target at.
Forex Pending Order Types
What if you only want to buy the EUR/USD if it breaks out of the trading range it has been in?
Such a breakout could be 10, 33, or 226 pips away from the current market price…and the breakout could happen while you’re away from your computer.
In this case, you’ll place a “pending order.” A pending order may or may not get executed. It’ll only execute if the price you set for the order is reached by the market.
Here’s the basic rundown of how to use pending orders. This may sound complex when written, but in your trading platform all you need to do is fill in the blanks (entry price, stop loss, and target) on the order form with the price levels you want. The software does the rest.
Here are the types of pending orders:
Forex Buy Stop Order
A buy stop order is used to buy the currency (pair) at a price higher than the current market price. The order will only execute if the price moves up to the order price.
For instance, if you wish to Buy the AUD/USD at 1.0621 and it currently trades at 1.0522. Place a Buy Stop order at 1.0621. If the market goes to that price your order is executed and you’ll have bought (be long) that currency pair.
Why use it? You only want to buy if the price starts moving up or moves above a specific price level.
Note: If you have a short position and place a stop loss, the stop loss is a Buy Stop order.
Forex Buy Limit Order
Use a buy limit order to buy the currency (pair) at a price lower than the current market price. The order will only fill if the price moves down to the order price.
For instance, if you wish to Buy the AUD/USD at 1.0220 and currently it trades at 1.0280. Place a Buy Limit order at 1.0220—if the market goes to that price your order is executed and you’ll have bought (be long) that currency pair.
Why use it? You may want to buy at a lower price than the current price.
Note: If you have a short position, your profit target is a Buy Limit order.
Forex Sell Stop Order
Use a sell stop order to sell the currency (pair) at a price lower than the current market price. The order will only execute if the price drops to the order level.
For instance, you wish to Sell the EUR/USD at 1.0225 and it currently trades at 1.03. Place a Sell Stop order at 1.0225—if the market goes to that price your order is executed and you’ll have sold (be short) that currency pair.
Why use it? You only want to short if the price starts dropping or move below a specific price level.
Note: If you have a long position, your stop loss is a Sell Stop order.
Forex Sell Limit Order
Use a Sell Limit order to sell the currency (pair) at a price higher than the current market price. The order will only fill if the price rises to the order price.
For instance, you wish to Sell the EUR/CAD at 1.4583 and it currently trades at 1.4525. Place a Sell Limit order at 1.4583—if the market goes to the price your order is executed and you’ll have sold (be short) that currency pair.
Why use it? You may wish to enter a short position above the current price or at a specific higher price.
Note: If you have a long position, your profit target is a Sell Limit order.
Forex Stop Limit Order
There is also a Stop Limit order (buy or sell). Some forex brokers don’t offer this order type, but some do. A Stop order will fill at any price above the Buy Stop order price, or below the Sell Stop order price. By adding a limit to the order, we control the price we get.
A Stop Limit has two prices. If you select this order type, you will need to input the two prices.
Assume you want to buy the EURUSD at 1.1550. It currently trades at 1.15. You place your Buy Stop at 1.1550. But you only want to buy between 1.1550 and 1.1560. Using a Buy Stop Limit you place the Buy Stop at 1.1550 and the Limit portion of the trade at 1.1560. This way, in case the price gaps through 1.1550 (on a weekend, or on news) you are controlling the price you pay and don’t end up paying 1.16, for example, when you wanted in at 1.1550.
For a Sell Stop Limit. Set the order price you want to be triggered into the trade at (sell Stop portion). Then also set a Limit below it. For example, a 1.2568 Sell Stop with a limit at 1.2560. This means you get filled in that 8 pip range, but not below 1.2560.
You set the difference between the Stop and Limit prices of the order. Ideally, you want to be entering a trade where you are supposed to (your entry price). The Stop Limit helps that to happen. If the price gaps through your Stop and beyond your Limit, you don’t get filled. Your order will remain open as a Limit order at the Limit price you set.
Additional Reminders About Forex Order Types
With pending orders, you can also set an expiry date. This is optional.
If an expiry date/time isn’t set the order will remain pending until canceled or filled. If there’s a time constraint the trade needs to take place within, set an expiry date. For example, if you only day trade, make sure all orders are canceled at the end of the day, or set all your orders to expire at the end of the day.
Be aware of all outstanding orders in your order log, and make sure you still want them. If you don’t, cancel the orders immediately to avoid the possibility of getting filled on the order in the future. Conditions change, so stay on top of any pending orders you have outstanding.
If you’re going to be away from your trading platform for a long period of time, make sure pending orders are canceled and/or they have a stop loss and profit target attached to them.
Are you sick of being frustrated with your day trading? Not making enough money? Trading is taking up too much of your time? Your method feels incomplete, like you are missing something? Do you feel lost in all the information and don’t know where to begin or what to focus on?
My EURUSD Day Trading Course teaches you how to day trade the EURUSD in 2 hours or less a day, with the potential to make double-digit percentage returns each month (with practice) with patterns that tend to occur almost every day.
By Cory Mitchell, CMT
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.