Market Order Types in Forex Trading
When trading forex, investors employ several special words and phrases, such as the terminology that refers to whether a particular trade has actually been entered in a 'buy' or 'sell' position. Anytime an investor trades long, they've entered a trade by purchasing, a forex lot with the expectation the price to rise. Traders will usually use either one of the words 'buy' and 'long' to describe the exact same action taken. Whenever an investor trades 'short', they have sold a forex lot, as they quite simply predict the price will drop. Traders also use the terms 'sell' and 'short' most of the time to refer to precisely the same action taken. For instance, if you intend to buy Australian dollars against US dollars, you'd probably go long on the AUD/USD pair by buying Australian dollars and selling US dollars at a given price. Or perhaps, if you consider the Australian dollar may possibly depreciate, then you could go short by selling Australian dollars to buy US dollars.
But what if you do not want to enter a position at the current price, but at any other price? There is no need to worry, there are 4 different market type orders based on which you could enter a position at the precise rate that you think would be right for you. The following 4 order types come under the category of Pending orders where you set a specific buying or selling price and the order would trigger just as the pair's price reaches your predetermined exchange rate.
Buy Stop
It's a form of pending order that is used when a trader expects the price to form a bullish movement; so that he could set a specific entry price for longing a pair that he thinks would be a safe point to enter. For example, if he is trading EUR/USD pair and the current price is at 1.2820 and he considers that it would be suitable to long the pair once it breaks the level of 1.2840, then he could set a buy stop entry at 1.2850 which means that once price comes to this level, his long entry would be triggered.
Sell Stop
Just like buy stop, sell stop is another type of pending order that is used when a trader is expecting the price to go down so that he could short a pair at a certain price he is comfortable with. For example if he is trading USD/JPY pair and it is hovering at the level of 100.20 but he considers that it could possibly be safe to short the pair under the level of 100.02, so he could set a sell stop at let's say 99.92. Once the price falls down to this level then his sell entry would get triggered automatically.
Sell Limit
The limit orders are also used for entering the market at certain price level, but the difference between limit and stop orders is that limit orders are used when a trader is using some profit maximizing tactic. Moreover, limit orders are used when a trader wants to enter the market at certain resistance or support levels from which the price could bounce back and continue its major trend after retracement.
For example, let's say you sell the EUR/USD pair at 1.2880 and cash your trade at 1.2820 with 60 points profit and expect the pair to give some correction that could lead it to test 1.2850. In this case, you could set your sell limit order at 1.2850 after which the pair may continue its major trend and would continue falling down.
Buy Limit
Buy limit works the same way as Sell Limit, but here a trader sets a certain price level at which he wants to enter as long on a given pair. For example, if he is bullish on a certain pair and is expecting the pair to rise after it gives some downward correction till 1.2820, then he could easily set a 'buy limit' order at 1.2820 and may target let's say 1.2860 for 40 points profit.
In summary, stop and limit orders are used to enter the market at specific price levels that may show up after some time when an investor may not be present in front of their monitor. In short, if you believe in your analysis then you could make use of such orders whilst in the meantime you could be doing something else. This would provide you with more free time, as you would not need to spend precious time in front of a monitor, anticipating for the ideal price level to show up.
But what if you do not want to enter a position at the current price, but at any other price? There is no need to worry, there are 4 different market type orders based on which you could enter a position at the precise rate that you think would be right for you. The following 4 order types come under the category of Pending orders where you set a specific buying or selling price and the order would trigger just as the pair's price reaches your predetermined exchange rate.
Buy Stop
It's a form of pending order that is used when a trader expects the price to form a bullish movement; so that he could set a specific entry price for longing a pair that he thinks would be a safe point to enter. For example, if he is trading EUR/USD pair and the current price is at 1.2820 and he considers that it would be suitable to long the pair once it breaks the level of 1.2840, then he could set a buy stop entry at 1.2850 which means that once price comes to this level, his long entry would be triggered.
Sell Stop
Just like buy stop, sell stop is another type of pending order that is used when a trader is expecting the price to go down so that he could short a pair at a certain price he is comfortable with. For example if he is trading USD/JPY pair and it is hovering at the level of 100.20 but he considers that it could possibly be safe to short the pair under the level of 100.02, so he could set a sell stop at let's say 99.92. Once the price falls down to this level then his sell entry would get triggered automatically.
Sell Limit
The limit orders are also used for entering the market at certain price level, but the difference between limit and stop orders is that limit orders are used when a trader is using some profit maximizing tactic. Moreover, limit orders are used when a trader wants to enter the market at certain resistance or support levels from which the price could bounce back and continue its major trend after retracement.
For example, let's say you sell the EUR/USD pair at 1.2880 and cash your trade at 1.2820 with 60 points profit and expect the pair to give some correction that could lead it to test 1.2850. In this case, you could set your sell limit order at 1.2850 after which the pair may continue its major trend and would continue falling down.
Buy Limit
Buy limit works the same way as Sell Limit, but here a trader sets a certain price level at which he wants to enter as long on a given pair. For example, if he is bullish on a certain pair and is expecting the pair to rise after it gives some downward correction till 1.2820, then he could easily set a 'buy limit' order at 1.2820 and may target let's say 1.2860 for 40 points profit.
In summary, stop and limit orders are used to enter the market at specific price levels that may show up after some time when an investor may not be present in front of their monitor. In short, if you believe in your analysis then you could make use of such orders whilst in the meantime you could be doing something else. This would provide you with more free time, as you would not need to spend precious time in front of a monitor, anticipating for the ideal price level to show up.
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