Trades are entered and exited through orders, and there are several types. In this article, we'll explain the main order types and when you might use them.
You might have heard the term 'market order' used to describe a type of order with a target rate to enter a trade. Intuitively this name makes sense – an order attached to the market –, but strictly speaking, a market order is an instruction to instantly execute at the best available price.
Many FX brokers loosely use the term 'market order' to represent any type of pending order, i.e. one with a target "fill" rate.Harry Mills, Founder & CEO Oku Markets
A limit order is a type of order to buy or sell at a specified price (or better). Also referred to as 'Take Profit' orders, limit orders give the flexibility to determine a precise market entry point which, if triggered, is automatically executed.
👉 Of course, there is no guarantee that the market will reach the required level to fill the order, so levels must be carefully considered and orders should be monitored.
- Sell limit orders target rates higher than the current rate
- Buy limit orders target rates lower than the current rate
💡For example, a GBPUSD Sell Limit order at $1.30 when the current price is $1.295 means to sell pounds to buy dollars at 1.30 (if the market reaches this level)
The term 'take profit' order is usually reserved for when an open position is being exited – the target level is the level at which profit is booked! At Oku Markets, we use the terms Take Profit Order and Limit Order interchangeably, meaning to enter a trade at a target level.
Stop Loss order
Stop loss (or, simply 'stop') orders are used primarily to limit downside risk. A target level is set which, if achieved, triggers a market order, i.e. to execute at the best available price.
For example, if GBPUSD is trading at 1.2950 you might place a stop order to sell pounds and buy dollars at 1.2900 in order to limit your downside risk and worst-case exchange rate.
- Buy Stop Loss orders are set at rates higher than the current rate
- Sell Stop Loss orders are set at rates lower than the current rate
👉 Remember that a stop loss order is executed at the best available price once the market order is triggered. Depending on market liquidity, this price may be worse than the trigger that was set – this is called 'slippage', and it's a very important consideration when using stop loss orders.
One Cancels Other (OCO) Order
An OCO is a combination of a Limit and Stop order, whereby whichever order triggers first, causes the other to automatically cancel.
For example, if GBPUSD is trading at 1.2950 you might place an OCO to sell pounds and buy dollars with a Limit level of 1.30 and a Stop level of 1.29.
Now you've mastered the basics, let's explore some of the more exotic orders...
- Call Order: an order to alert of the price trigger via email, sms, or a phone call
- Trailing Stop: a stop order with a trigger level that follows/trails the prevailing price by a set amount (number of pips), therefore improving the worst-case rate if the spot price moves favourably
- If Done: an order which, if filled, opens another order
- Benchmark Order: an order to automatically execute at a benchmark fixing rate, such as those provided by WMR (Refinitiv) and Bloomberg
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