The forex market functions in a seamless 24-hour cycle, and
that means a lot for traders – both positive and negative. On the positive side,
they can have flexible schedules and trade with what their schedule allows. However,
the negative part is that it would be exhausting to manually do all the trading
without feeling like you’re chasing the market’s movements all the time. This
is why we need some level of automation in the market; this is why there are
different types of forex market orders.
In this article, we will describe the different forex market
orders that can come in handy for you when you’re trading. These can also help
you step up your risk management skills, as they are more often used for such
purposes.
Market Order
Market orders are the most common type of order in the forex
market. In simple words, it is merely an order to purchase an asset at the current
market price. That means if you have ever purchased anything online, the button
you press performs the function of a market order in the forex market.
The market order may be executed on a real time basis when it
has been placed. This order automatically seeks for the best possible price
available in the market and books your order at that price. Since the prices in
the forex market are changing so rapidly, it’s possible that the market order
will be executed at slightly different price from what you aimed for.
Pending Order
A pending order is an instruction to execute a buy or sell
trade, just like a market order, but only when a certain condition is met. Therefore,
you can consider it to be a conditional market order. Pending orders are therefore
not executed and not considered to be a part of the calculations for margin
until the time they are executed.
Pending orders get rid of the need to be continuously
monitoring the market to be able to make
a trade. Rather than doing that, it allows traders to set up an automatic order
that will execute trades in an instant when the specified conditions are
fulfilled. Orders like this diminish the need for manual intervention in the
process of trading.
Profit booking Order
A profit booking order is typically an order to square off a
long open position, or simply to sell. These orders specific the conditions
that need to be met before the square off takes place.
For example, an order to execute a trade if the profit hits
10 percent or there is a 12 percent increase in price is a profit booking order.
These orders let traders book profits in a market where prices change rapidly
and manual placing of orders may consume a long time.
Stop Loss Order
A stop loss order is
the reverse of a profit booking order. On the other hand, it is much used more
often in the market than a profit booking order. This order indicates a
downward limitation that the investor is willing to bear. If the trade slips
below this limit, the investor sell their holdings to minimize the losses they
incur.
Trailing Stop Order
A trailing stop order
is quite similar to a stop loss order. This order also sells off an open
position when the prices reach a certain downward threshold. However, this
threshold moves up if there’s a price increase or profit.
For instance, suppose you create a trailing stop order at 10
percent below the market price. The next day, you see that the value of you
holding has increased 15 percent. If you use a stop loss order, the threshold
would stay the same, which is 10 percent below the market price where you
initially started the trade. On the other hand, a trailing stop order trails
the market price, hence the name. In this case, the price floor would be 10
percent below the new market price.
Dependent Orders
The forex market also lets investors create dependent
orders. This means that you can place two orders simultaneously and, depending
on the conditions of the market, only one of them will be executed. Alternatively,
the placing of one order could trigger the placing of another order sometime in
the future. These orders can be used to design complex
algorithms that execute with minimal human intervention.
Read more: Understanding Forex Trading Signals: How do They Work?
Read more: Understanding Forex Trading Signals: How do They Work?
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