What is order type in trading?
In the previous discussion, we have learned about pip, pipette, margin, leverage, swap, spread, bid and ask, and so on, where to learn how to trade in forex is very important to learn it all as a basis for education.
On this occasion, we will continue the discussion about order types in forex.
Referring to the word “order”, this is a way for traders to enter and exit the market by executing trades.
There are several types of order types in forex, but because each broker may have a different trading platform, then there may be different types of orders in each broker.
But the basic order types that need to be studied are market orders and pending orders.
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Market orders are types of orders that describe buy or sell at the prices currently available as the best prices.
If your broker uses the MetaTrader platform, you will see it as market execution.
For example, the current price of EUR / USD for the bid price is 1.1200 and the ask price is 1.1202 if you buy then the broker will sell to you at the price of 1.1202, when you execute a market order you will get at that price.
But in practice, you might not get it at that price due to the volatility of the moving price which allows slippage to occur so that there is a deviation from the purchase price.
Order type limit
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In order type limit, there are two types namely buy limit and sell limit.
Buy limit is that you place an order at a price below the market price, usually at a minimum distance from the market price is 10 pips, for example, the current price of EUR / USD at 1.1020. You can place a buy limit order at 1.1010.
Sell limit is that you place an order above the market price, for example, the current price of EUR / USD at 1.1020, you can place a sell limit order at 1.1030
Traders who do not want to always monitor the price movements of part of them use a limit type order by asking at a certain price and they can leave the chart and wait for the order to be executed by the price movement.
Rather than waiting in front of the chart until the price is considered the best price, with a limit order, they can relax while drinking coffee.
But what needs to be understood is that the price will be executed according to the bid or ask price offered by the broker.
So, for example, you place a buy limit at 1.1020 then if the broker’s spread is 2 pips then the price will be executed when the price reaches 1.1022.
Order type stop
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In stop type orders, there are also two types, namely, buy stop and sell stop.
A buy stop order is a type of order where a trader asks at a price above the current price, for example, the current price at 1.1020.
Then a trader can place a buy stop order at 1.1030, usually, the minimum distance from the current price is 10 pips to be allowed to make a buy stop order.
Meanwhile, a sell stop order is a trader placing an order at a price below the current price, for example, the current price at 1.1020 then a trader can place a sell stop order at 1.1010.
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Traders use this type order stop because they predict that the trend will continue after a breakout, for example during high impact news, some traders use these buy stop and sell stop orders before the news is released.
Actually the trader has two choices when he wants to get at a certain price, whether he will wait in front of the chart until the price reaches that price, or with a stop order type, by asking at that price.
For the first way maybe you can not wait because maybe even the price does not reach the desired, so using the stop order is a more relaxed choice, you can leave the chart and drink a cup of coffee.
Order type stop loss
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Stop-loss type orders are orders that are linked to an order, which is to prevent a larger loss when the price moves against an order that is placed.
In a market order, you can place a stop-loss order before you execute the order, or you can also modify the order after the order has been executed.
Stop-loss orders will remain active as long as the trader has not closed the order, or the stop-loss price has been reached so that the order will be closed by the broker.
How to place a stop-loss order depends on the buy or sell option on the order.
If a trader chooses a buy then you can place a stop loss below the purchase price, the minimum distance is usually 10 pips, so, for example, you buy at 1.1020, you can place a stop-loss order at 1.1010, conversely if you sell then you can place a stop-loss order at 1.1030, if the price already reached, hence you will get loss -10 pip.
This stop-loss type order is useful for managing the risk that is ready to be borne in a single order or trading plan.
With a stop-loss order, you can more relax leave the chart without worrying about greater risk when the price is against your order because the risk you have planned before.
So you can say when you buy, stop loss will be a sell stop order, and when you sell, the stop loss will be a buy stop order.
Order type trailing stop
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A trailing stop type order is a fluctuating type of order, this is a stop loss that automatically locks when the price range has been reached.
Maybe you have a headache with that explanation, for the sake of simplicity we take an example, you decide to buy EURUSD at 1.1040, you use 10 pips trailing stop order.
Then the original stop loss is at 1.1030, after a while, the price changes at 1.1050, then your stop loss will automatically move to 1.1040, this is your break-even point.
If then the price continues at 1.1060, then the trailing stop will move the stop loss at 1.1050, and you have locked the 10 pips profit.
If the price continues to go up then the step will repeat again, but if it turns out the price drops and reaches a stop loss, the order will be closed.
The distance the stop loss moves at the trailing stop depends on your settings, if you select 20 pips then the stop loss will move after the 20 pips distance is reached.
How do you use this trailing stop? on the MetaTrader 4 platform, after you open a new order, highlight the ticket order and right-click, a new menu option will appear, and you can choose the trailing stop and then choose the trailing stop value option to use.
But what needs to be understood is that this type of trailing stop order will only run if your platform is connected to the broker’s server.
So if you close your MetaTrader 4 platform, this trailing stop will become inactive and the stop loss will be at the last price you opened the platform.
Types of Orders That Are Not Commonly Used
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The types of order types mentioned above are the types of orders in forex commonly used by traders.
However, there are also strange types of orders that are not commonly used by traders.
Below are the types of strange orders that although you may not use them, it is better to learn them as additional insights in the forex business.
Order type: Good ‘Till Cancelled (GTC)
Maybe this type of order sounds quite strange, but this is indeed one type of order used in forex trading.
A GTC (Good Till Canceled) order is an order to buy or sell assets on the financial market at the price the broker receives from the client and is valid until the order is fulfilled or canceled.
This term is actually the same as a pending order, for example, you do an open buy on EURUSD at the price of 1.1200 while the current price is 1.1210, for this GTC order you can buy and sell at a certain price either above or below the current price.
Order type: Good for the Day (GFD)
Good for the Day (GFD) is a type of order in forex which means that the order will remain active until the end of the day, in this case, it will refer to the hours of the broker, usually at 05.00 pm EST when the New York market is closed.
The trader uses this type of order to trade day style trading, so he will open and close orders on one trading day.
Order type: One-Cancels-the-Other (OCO)
OCO orders are to be a combination of two orders.
Two orders with different prices and durations are placed above and below the current price.
This order type meaning if one of the orders executed, hence another order is canceled.
For example, the current GBP/USD price is 1.2340. We want to Buy at 1.2365 or Sell if the price falls to 1.2310 later.
With an active One-Cancels-the-Other order, it turns out the price went up and reached 1.2365. At that time, Buy orders are automatically running, while Sell orders at 1.2310 are canceled.
Order type One-Triggers-the-Other (OTO)
Different from OCO because at OTO the order will active only after the initial order is executed.
For example, GBP/USD is currently trading at 1.2000
We think, after hit 1.2100, the pair will turn around and decline to 1.1900.
To wait for the price to arrive at the prediction is sometimes boring because it must always be in front of the computer.
So, in order to be able to “catch,” opportunities even though not at the computer, we can place a Sell Limit at 1.2000, as well as a Buy Limit at 1.1900, as well as just in case, stop loss at 1.2100. As an OTO order, the Buy Limit and Stop Loss will only be placed if your first order to Sell at 1.2000 been active.
Learning order types in forex and CFD trading is a basic lesson for beginners.
By understanding how the order type works, at least after dealing with a trading platform you will be able to adjust easily in order execution and the importance of using certain order types.
In the type of order that is not commonly used, indeed not all brokers provide that type of order, so you also need to understand the trading platform used and the available order type facilities.
For more convenience, you can use a paper trading or demo account platform, to learn how to use all the features on the platform.