October 18, 2013

Foreign Currency Exchange Order Types

This article discusses the different types of orders you can make use of in the foreign currency exchange market.

Foreign Currency Exchange Trailing Stops

Prior to starting live trades, you should know exactly what types of orders you can place and how to place it.  There are various foreign currency exchange order types for different situations.

Market Order

Market orders are placed if your intention is to purchase or dispose of a currency pair at the prevailing market price.  This type of order is used to go in and out of the market quickly.  If the market is not awaiting news announcements and it is trading under normal conditions, these orders are executed immediately.  If the market has become volatile due to news announcements, it may be necessary for you to handle re-quotes.  This is due to the fast price movements which may result in a price change between the time that you place the order and your broker receives your order.  In this case, your broker will immediately issue a new quote.  You have the opportunity to reject the new quote or accept it.  Your broker will normally not fill that order unless you have accepted the re-quote.

Stop Order

Stop orders remain open until a specified purchase or sell price has been reached which will prompt you to exit the trade.  These orders contain variable of time and price, similar to limit orders.  The main difference between the two types of orders is that limit orders are placed as entry points, whereas stop orders are placed as exit orders.  Stop orders are generally used as an exit point when your trade enters a point of loss, or to leave the market once you have reached your pre-determined level of profit.

Trailing Order

Trailing orders are used to remain in the market for a while longer.  It specifies a point of exit a few pips below the price which is currently prevailing.

Limit Order

Limit orders can be viewed as pending orders that become effective once a price stated by you has been reached.  The variables in this instance are time and price.  When you want to enter this type of order, you need to state the price you are prepared to purchase or sell your currency pair at.  You also have to specify an active period of time for the order.  You could opt for a ‘good till cancelled’ or ‘good for the day’ order.  A ‘good till cancelled’ order is active until you manually cancel it.  It is not your broker’s responsibility to cancel the order.  The responsibility lies with you to remember that you need to cancel the order.  An order that is ‘good for the day’ will expire once the trading day has come to an end.  This time is normally at midnight GMT for most trading platforms.

Foreign Currency Exchange OCO Order

OCO orders are also called ‘one cancels the other’ orders.  This type of order combines two stop and/or limit orders.  It consists of two orders with the same time and price variables, however these are set below and above the current market price.  Once an order is placed, the other order type will be cancelled automatically.



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