Forex Order Types Explained

by Dec 17, 2020Forex Order Types

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A list of questions I will cover in this post:

  1. What Are Forex Order Types
    1. Stop Order
    2. Limit Order
    1. Instant Order
    2. Market Order
    3. Pending Order

You will learn what is needed to understand Forex order types which each beginner trader should know.

What Order Types Are in Metatrader 4

You need to know which types of order is on Metatrader 4 and understand them correctly so you can open correct order at correct time. You do not want to set pending order for sell and when order is open you find out that you have set pending order for buy. This can happen when you do not understand what type is for what.

That is why I tell all my team members to understand logic behind what they are doing. When you understand it you will be able to think about it and set correct pending order.

Forex Instant Order Type

This is order type where you open sell or buy currency at the “Ask” or “Bid” price. It means when you press button on the mouse your order will open at the entry price you see it.

It will not happen that your order ends open with another price compared to the one you wanted. This problem can happen on other order types.

Read more: What is Buy in Forex

Read more: What is Sell in Forex

Forex Market Order Type

Market execution order is similar to instant order but there is a time when order does not open at desired price because broker and liquid provider(banks) execute your order at the price that is average and best available price at the time of execution.

This means you can open price that is different to one you have saw on the chart before opening a trade. When there are news published that moves market, this can happen because large volatility comes into the market and system cannot fulfill your desired order price. But it fills your order with next available price.

If you have too many times this kind of a problem please try to find another broker. Broker should offer you the best execution on their platform. If they cannot fulfill this then he is not the best choice for you.

Forex Pending Order Types

Pending order type is order which you plan to execute in the future. You are waiting order to open if certain rules are fulfilled. Those rules are set by you where you say to open sell or buy order if the price reaches certain level.

The price at which you want to open a trade can be above or under current price. Then you wait until price comes to that level and order is executed automatically by Metatrader 4 trading platform.

But when the price reaches certain level in the future at which you want to open a trade then you need to have already defined will that be buy or sell order.

To decide which order you want you have several possible choices.

Forex Stop Order Types

There is two stop order, buy and sell. Buy or sell stop order have logic in a way that current price on the market must first reach that level in the direction, buy(bull) or sell(bear) and then order will be triggered.

That means when you want to use Buy Stop order market price must move in bull direction(long – UP) from current position and when price reaches certain level you have defined, a level at which you have set pending buy stop order then order will be triggered.

When you want to use Sell Stop order market price must move in bear direction(short – DOWN) from current position and when price reaches certain level you have defined, a level at which you have set pending sell order then order will be triggered.

Let me explain this on the examples. It will be easier to understand.

Buy Stop Order

If you want to buy EUR/USD currency pair in the future at the price that is higher than current market price(example – 1.12778) you will activate Buy Stop order. Meaning, you expect that market will move in bull(UP) direction when EUR/USD price reaches level 1.13430.

This way you expect by your trading strategy that pair must come to 1.13430 level and then price will continue to move up. If price does not reaches that level you do not expect that it will continue to rise and your trade will not be activated.

Buy-Stop-Order-Explanation
Sell Stop Order

If you want to Sell EUR/USD currency pair in the future at the price that is lower than current market price(example – 1.12778) you will activate Sell Stop order. Meaning, you expect that market will move in bear(DOWN) direction when EUR/USD price reaches level 1.12110.

This way you expect by your trading strategy that pair must come to 1.12110 level and then price will continue to move down. If price does not reach that level you do not expect that it will continue to fall and your trade will not be activated.

Sell-Stop-Order-Explanation

Forex Limit Order Types

There are two limit orders, buy and sell. Buy or sell limit order have logic in a way that current price on the market must first reach that level in the direction, for buy(bear market) or for sell(bull) and then order will be triggered.

That means when you want to use Buy Limit order market price must move in bear direction(short – DOWN) from current position and when price reaches certain level you have defined, a level at which you have set pending buy limit order then order will be triggered.

When you want to use Sell Limit order market price must move in bull direction(long – UP) from current position and when price reaches certain level you have defined, a level at which you have set pending sell order then order will be triggered.

Generally meaning is that you expect that market will change direction when price reach level you expect.

Limit order is used mostly in swing trading where traders expect that trend will reverse. Limit orders are placed mostly on confluence level where several indicators meet and indicates that price could reverse.

Let me explain this on the examples. It will be easier to understand.

Sell Limit Order

If you want to sell EUR/USD currency pair in the future at the price that is higher than current market price(example – 1.12778) you will activate Sell Limit order. Meaning, you expect that market will move in reverse direction, short(DOWN), when EUR/USD price reaches level 1.13430.

This way you expect by your trading strategy that pair must come to 1.13430 level and then price will reverse and start to move down. If price does not reach that level you do not expect that it will reverse and your trade will not be activated.

Sell-Limit-Order-Explanation
Buy Limit Order

If you want to Buy EUR/USD currency pair in the future at the price that is lower than current market price(example – 1.12778) you will activate Buy Limit order. Meaning, you expect that market will move in bull(UP) direction when EUR/USD price reaches level 1.12110.

This way you expect by your trading strategy that pair must come to 1.12110 level and then price will reverse and start to move up. If price does not reach that level you do not expect that it will reverse and your trade will not be activated.

Buy-Limit-Order-Explanation

Conclusion

These are Forex order types you will use in trading. Maybe you will not use all of them in your trading, but instant market execution amd market execution you will use for sure.

Pending orders are not easy to understand at the first, but as you use them more and more you will learn how to understand them logically.

Pending orders are very usefull if you have strategy that is based on waiting for future price levels. Pending orders are set and forget where you are relieved of watching markets.

If you want to learn more about each order in more details you should read articles that are describing them in more details.

When you have examples of each order it can be helpful to understand them more.

If you want to learn how to open and close order in Forex then read more about how to open and close order in Metatrader 4.

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Frano Grgić

Frano Grgić

A Forex trader since 2009. I like to share my knowledge and I like to analyze the markets. My goal is to have a website which will be the first choice for traders and beginners. Market analysis is featured by Forex Factory next to large publications like DailyFX, Bloomberg... GetKnowTrading is becoming recognized among traders as a website with simple and effective market analysis.

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