In forex trading, order types dictate how your trades are executed. They provide instructions to your broker regarding the price and timing of entering or exiting a position. Here are the main forex order types:
1. Market Order:
- Simplest and fastest execution.
- Instructs your broker to buy or sell at the best available price in the current market.
- Guaranteed execution, but the price might differ slightly from the quoted price due to market volatility.
2. Limit Order:
- Offers more control over execution price.
- You specify a limit price, which is the maximum price you’re willing to pay to buy or the minimum price you’ll accept to sell.
- The order only executes if the market price reaches your limit price or a better price (more favorable for you).
- No guaranteed execution, as the market might not reach your desired price.
3. Stop-Loss Order:
- Used to manage risk by automatically exiting a losing position.
- You set a stop-loss price below the current price for a long position (buy) or above for a short position (sell).
- If the market price reaches your stop-loss level, the order triggers a market order to sell (long) or buy (short) to limit potential losses.
4. Stop-Entry Order:
- Used to enter a trade at a specific price level.
- There are two types:
- Buy Stop: Placed above the current market price. The order triggers a market order to buy if the price rises to your stop price.
- Sell Stop: Placed below the current market price. The order triggers a market order to sell if the price falls to your stop price.
5. Trailing Stop:
- A dynamic stop-loss order that automatically adjusts as the price moves in your favor.
- You set a trailing percentage or price distance from the current market price.
- As the price moves in your favor (up for long positions, down for short positions), the stop-loss automatically adjusts to lock in profits while limiting potential losses if the price reverses.
These are the core forex order types. Some brokers might offer additional advanced order types that combine elements of these basic ones.