Types of orders in Forex & CFD trading

There are only two types of orders in Forex. They are: market order and limit order. However, these orders have their sub-orders, so to say. This basically means that even though there are two options on the surface, it branches out into a lot more opportunities the further you go into the market.
Most beginners only trade with market orders, which is encouraged, but many experts will say that learning about new order types is absolutely essential if one wants to master FX trading.
Most of the sub-orders come from Limit orders, which is a useful planning tool for traders that do their research and prepare for market changes. Almost every single event that can happen in the market has its own order which makes it so much more interesting to truly start using the advanced features.
A market order is basically you or any other trader buying or selling at the current market price. These types of orders happen immediately after you press the button. They are quite common and usually the go-to order type if the market is easily predictable.
A limit order is pretty much the same as a market order. The only difference between these FX orders is that limit helps you decide at what point you would like your exchange to start. For example, if you think that the price of an asset is going to fall tomorrow and rise in two days, you place a limit order, telling the broker to buy when the price is low, and sell when the price is high.
An OCO order means “One cancels the other order”. It’s basically like having two orders open at the same time. If one of the orders’ conditions are met, the other order is immediately closed. Pretty simple. But we will discuss these orders in much more detail further into the guide.

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Forex order types explained

Although small explanations of the order types are more or less enough for experienced traders that have touched the markets at least once, it’s not enough for those who have had no experience trading FX or any other assets.

So, in this paragraph, let us try and truly dive into every single order type and explain it as much as possible. Every order type has its goal but sometimes they can be pretty similar, which is why it is sometimes confusing. But there’s not much to worry about, a glance through the details should be enough for most traders to truly understand these orders.

What is a market order?

A market order is when a trader opens a position with the current market price of an asset. For example, imagine that the USD/JPY exchange rate is 109.7. You believe that the price will not go any further down for this Forex pair, so it’s a good time to enter the market. Since you don’t have to wait for anything, you simply put a market order, which opens a trade with the current exchange rate of the asset. Once the trade is open, it starts being affected by all the price changes and fluctuations of the market.
What is a market order
If the market goes against your prediction, meaning if the exchange rate goes below 109.7, then you will see a loss, but if it goes exactly how you predicted, meaning above 109.7 then you will see some payouts.
That’s about all there is to market orders. It’s just a position you open with the current exchange rate of an asset.

What is a limit order?

A limit order is a bit trickier than a market order. It’s basically a feature that helps you plan for future changes in the market.

For example, let’s imagine that the USD/JPY exchange rate is still 109.7, but you soon find out that Japan will release its economic performance document next week. You believe that the results are going to be bad, which means the exchange rate is going to decrease to around 107.1.
This would mean that you would wait for the document to be released, but next week you may not be home. This is the case where a limit order would be very useful. The way limit orders Forex work is that you tell the broker to open a position for you when the exchange rate reaches 107.1. This helps traders who know that the exchange rate is going to fall in the future, avoid any potential losses even though they want to trade. It’s like planning ahead and getting the most out of your trades.
Limit orders Forex
The same works for sell orders on CFDs when you think the price is going to increase in the future.
Now let’s talk about the sub-types that come with limit orders in a sense.

What are OCO orders?

OCO order stands for “one cancels the other order”. It’s one of the few unique types of orders in Forex that allow having two orders open at once. Let’s try and explain it with another example but this time with a CFD of a company’s stock.
Let’s say that you have 10 shares of company X which are worth $10 each. You believe that there’s a chance for the price to increase to $25 because the company just signed a new contract with the government. However, there’s also a chance that the price will decrease if they fail. So, you open two orders. A take-profit order when the price reaches $25 and a stop-loss order when the price reaches $8. You then get a chance to trigger the OCO order. If the price reaches $25, your position will be closed as you sell the shares, and the OCO order will cancel the stop-loss order immediately.
The way these orders with CFDs work is pretty similar to Forex as well. Usually, traders will place an OCO order with very small gaps. Right now we had an example of a large gap, but a more realistic OCO order would look something like this:
  • Take profit at $25
  • Stop loss at $23
It’s quite close, but it’s something that sometimes guarantees payouts for traders, but it’s quite risky as well.

What is a stop order?

A stop order does pretty much what it says in the name. It stops the order when conditions are met. Many would say that these FX orders are the most common in the market but that is still debatable.
Both stop-loss and take-profit orders are part of stop orders, because they, as the name suggests, stop the order once a certain condition is met. It’s pretty easy to understand really.

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FX order types - Key takeaways

There are two types of orders that have their own subtypes as well. These are market orders and limit orders.
Limit orders are the ones that mostly have these sub-types such as stop orders, OCO orders and many others that are a bit more advanced for the average trader.
These order types are not unique for FX and CFDs only, they can be used on almost every asset available in the financial markets.
Order types are mostly used to plan for the future or react to market events as they happen. Almost all of them have their unique points where they are immediately useful.

FAQ on Forex order types

Can I have two orders open at the same time?

Yes, you may have both market and limit orders open at the same time and trigger the OCO order while you’re at it. In fact, the OCO order is designed for multiple orders.

Many seasoned traders prefer having multiple orders open at the same time as well. This mostly includes stop-loss and take-profit orders but other advanced types are used sometimes as well.

How do I choose which order I want to open?

It’s all about research and analysis, all types of orders in FX have their purpose. Do you think that an FX pair is going to rise in the future, then most traders would go for opening a market order because they’re sure the exchange rate won’t fall.

If you think that the exchange rate is first going to fall and then rise, then most traders would open a limit order where they instruct the broker to start a trade when the pair reaches a certain exchange rate.

Will these order types help me perform better in trading?

Yes and No. Traders who take the time to learn about these FX order types and truly understand what they are designed for have a much better chance of making correct guesses and planning for any change in the markets in the future.

Those who don’t know what these order types do are usually at risk of placing the wrong order and making their losses even worse.

Which Forex order type is the most popular?

There’s not necessarily such a thing as the most popular order type. Every order type has its goal and its moment when it is very useful with only a few being useful all the time. But to answer the question, the most common order type would be the stop order.

Traders place these orders to decrease the risk they face in their trading strategies, but it does not mean that it is guaranteed safety.

Are order types risky?

Yes, regardless of what types of orders Forex has and the features they introduce, everything associated with trading is extremely risky. With order types, there’s always a risk that you may not understand it completely and place the wrong order at the wrong time. This has a risk of leading to more losses than if you had done nothing at all. It is all about knowing what these order types do, and when they are most useful to use.

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