Introduction to Order Types
Understanding the differences between the order types available can help you determine which orders best suit your needs and are best suited to help you to reach your trading goals.
Market
A market order is the most basic order type and is executed at the best available price at the time the order is received.
AUD/NZD had been moving higher during most of 2022. Between the end of April and mid-September, price had been rising in an ascending wedge formation. Expectations are that price will break lower out of an ascending wedge as price nears the apex. However, AUD/NZD moved above the price pattern to a high of 1.1480, which proved to be a false breakout. The pair moved back inside the wedge and moved lower. The target for the break of an ascending wedge is a 100% retracement, which was 1.0825. AUD/NZD moved to this level in less than two months and continued moving to a 2022 low of 1.0471 on December 16th. Since then, the AUD/NZD bounced to the 38.2% Fibonacci retracement level from the 2022 highs to lows near 1.0860 and has been hovering around that area for the last week.
Limit
A limit order (also referred to as a “take profit” order) is an order to buy or sell at a specified price or better. A sell limit order is filled at the specified price or higher; buy limit orders are executed at the specified price or lower.
Limit orders allow you the flexibility to be very precise in defining the entry or exit point of a trade. Keep in mind that limit orders do not guarantee that you will enter into or exit a position, because if the specified price is not met, you order will not be executed. A limit order that is attached to a currently existing open position (or a pending entry order) with the purpose of closing that position may also be referred to as a “take profit” order.
Stop
A stop order triggers a market order when a predefined rate is reached. A buy stop order triggers a market order when the offer price is met; a sell stop order triggers a market order when the bid price is met. Both stop orders are executed at the best available price, depending on available liquidity. Stop orders, also called stop loss orders, are a frequently used to limit downside risk.
Stop orders help to validate the direction of the market before entering into a trade. It’s important to keep in mind, that stop orders are executed at the best available price after the market order is triggered, depending on available liquidity.
Trailing Stop
A trailing stop is a stop order that is set based on a predefined number of pips away from the current market price. A trailing stop will automatically trail your position as the market moves in your favor.
If the market moves against you by the predefined number of pips, then a market order is triggered and the stop order is executed at the next available rate depending on liquidity.
Contingent Orders
Contingent orders combine several types of orders and are used to execute against a specific trading strategy. Contingent orders require that one of the orders is triggered, before the other order becomes activated.
The most common types on contingent orders are If/Then and If/Then OCO.
If/Then
An if/then order is a set of two orders with the stipulation that if the first order (known as the “if” order) is executed, the second order (the “then” order) becomes an active, unassociated, single order. Unassociated orders are not attached to a trade and act independently of any position updates. In cases where the “if” order does not execute, the “then” single order will remain dormant and will not be executed when the market reaches the specified rate. Note that when either part of an if/then order is cancelled, all parts of the order are cancelled as well.
If/Then OCO
An if/then OCO provides that if the first order (the “if” order) is executed, the second order (the “then” order) becomes an active unassociated one-cancels-other (OCO) order. Remember, unassociated orders are not attached to a trade and act independently of any position updates. As with a regular OCO order, the execution of either one of the two “then” orders automatically cancels the other.
In cases where the “if” single order does not execute, the “then” OCO order will remain dormant and will not be executed when the market reaches the specified rate. When any part of an if/then OCO order is cancelled (including either leg of the OCO order), all other parts of the order are cancelled as well.
Expirations of Orders
Market orders are day orders as they are executed at the next available price. However, an expiry value of End of Day (EOD) or Good Till Cancel (GTC can be submitted for all other order types.
- End of Day – an order to buy or sell at a specified price will remain open until the end of the trading day, typically at 5pm / 17:00 New York.
- Good Til’ Cancelled – an order to buy or sell at a specified price will remain open until it is filled or cancelled. At FOREX.com GTC orders will automatically expire on the Saturday following the 90th calendar day from the date the order was entered.
