There is more than one way to enter the forex market. Aside from the classic buy and sell orders, what types of orders you can try to maximize your profit chance?
Similar to how we make an order in a restaurant, the term "order" in forex trading is also related to the request or instruction that you make to open or close a transaction. In short, it refers to how you enter and exit the trade. Every trader has a preference when it comes to opening or closing orders, so brokers typically offer several types of orders to accommodate all traders' needs.
Most traders would immediately recognize Market Order and Pending Order, but those are certainly not the only ones. There are other order types that you can choose, each with its features and benefits.
1. Market Order
The market order is the simplest order that you can make in forex trading. Opening a market order means buying/selling currency at the current price available on the market. For example, the rate for USD/JPY is currently at 109.838. If you want to open a buy order, then you would have to use 109.852 as the ask price. And if you click "buy", your trading platform will immediately execute your request at that rate. Take a look at the chart below.
The green area is the market order. It shows your current position that's executed at the current price (109.852).
2. Limit Entry Order
A Limit entry order is a type of order that's set to buy at a price lower than the current price. When it comes to selling, the price chosen is always higher than the current price.
Let's say the USD/JPY price is currently at 109.858, but you want to open a buy position when the price is at 108.800. The first option that you can do is to wait for the price to fall and reach 108.000 and click "buy" with a market order. However, this is certainly ineffective because there's no telling when the price will drop to that level. For all we know, it could be minutes, hours, days, or even weeks later!
With that being said, the better option would be to open a buy position with limit entry order then leave it. Once the price reaches 108.800, the system will automatically execute the buy position as you requested.
As you can see on the chart, the limit order (the green area) runs at 108.800, even though the current price is at 109.858. It is also worth mentioning that limit entry order is a part of pending orders. Traders can take advantage of it if they think that the price will reverse after reaching a certain point.
3. Stop Entry Order
Stop entry order is also a part of pending orders and is used when you want to open a buy position at a higher level than the current price. Similarly, it's effective to help you execute a sell position at a lower level than the current price. Therefore, this order type is appropriate if you think that the price will break a certain level and continue moving in the same direction.
Based on the chart above, you can see that the USD/JPY is currently traded at 109.846 and moving upward. If you expect the price to continue rising once it reaches 111.412, you could wait for the price to reach it and open a buy position with a market order, or open a stop entry order at 111.412. The latter will execute the trade once the price reaches the desired level even when you're away from the chart.
4. Stop Loss Order
Unlike the previous order types, the purpose of a stop loss order isn't to open a new position, but to prevent you from getting too much loss in a losing trade. Stop loss can be set after or before opening a buy or sell position with any order type. The stop loss will continue to run until the position is fully closed. Let's take a look at the chart below.
Notice that apart from the actual buy order itself, a stop loss order is also set at 108.838 with a profit target of 111.411. So, if the price does not continue to rise as expected, the trade will automatically be closed at the stop loss level (108.838). This is to minimize trading risk and prevent the trade from losing too much. Remember that the forex market is uncertain and often unpredictable. While it's important to focus on your target, it is also necessary to be prepared for unfortunate situations.
5. Trailing Stop Order
Trailing Stop is basically an enhanced version of a stop loss order. With this order, the stop loss will adjust to the changes of price fluctuations. So, once the trailing stop changes its location, the new level becomes the new stop loss. This process should go on as long as the price moves in a certain predetermined range.
Let's say you buy USD/JPY at 109.852 with a trailing stop interval of 20 pips. This means, the initial stop loss is at 109.652. If the price moves upward and reaches 110.252, the trailing stop will move to 110.052. If the price changes direction and moves down, the trailing stop will automatically close the position at 110.052. As a result, you would still be able to secure your profit up to that point.
6. Unusual Orders
The order types that we've mentioned above are still considered common among traders. However, expert traders usually have distinct needs and preferences, so some of them prefer to use other types of orders such as:
Good 'Till Cancelled (GTC) Order
This type of order will make sure that the position remains active until you decide to cancel it. In other words, the broker won't cancel the order without the trader's consent. So, if you choose to use this type of order, you need to be careful and remember to check it from time to time.
Good for the Day (GFD)
The GFD order will stay active until a trading day ends. However, since the forex market is open 24 hours a day, it's a good idea to check with the broker about what time the trading day ends exactly.
One Cancels the Other (OCO)
This type of order is basically a combination of two different orders with the addition of stop loss. It enables you to open two opposing pending orders and make sure only one of them will be executed no matter how volatile the price is going to be. That is because once one of the orders is executed, the other one will be canceled.
Let's say the EUR/USD price is at 1.2040 and you want to either buy at 1.2095 or sell at 1.1985. Once the OCO order is set and the price rises to 1.2095, then the buy order will be activated and the sell order will be canceled. On the contrary, if the price falls to 1.1985, the sell order will be activated and the buy order will be canceled.
See Also: OCO Order Strategy, How Does It Work?
OTO is the complete opposite of OCO order because the order will only be triggered once the initial order is executed. For example, the USD/CHF is currently traded at 1.2100 and your prediction is that the price will move upward. Then, once it touches 1.2100, it will drop down to 1.1900.
Now, the problem is that you don't want to stare at the screen for hours just to wait for that exact moment. This is why you need an OTO order. You could set a sell limit at 1.2000 while simultaneously setting a buy limit at 1.1900. In addition, set a stop loss at 1.2100 just in case your prediction is wrong. The buy limit and stop loss positions will then be placed only when the first order is already executed.
Keep in mind that these orders are not common, so not all brokers have them in their service. Thus, if you want to try one of these order types, make sure that your broker provides them.
If you're still unsure about which order type you should go for, just try to trade in a demo account. Keep using the demo account until you feel confident and comfortable enough to open a live account and trade with real money.