There are 3 types of forex orders you can use to trade the currency market using supply and demand.
These types of orders are: market orders, limit or pending orders, and confirmation orders. You can choose the right order based on your trading setups and market conditions.
These types of forex orders are allowing traders to maximize their profits by having more flexibility in trading different market setups.
In this article, I will show you the 3 different types of forex orders you can find on any trading platform, and how to use them appropriately.
What are trade orders?
Trade orders represent the different types of forex orders that traders place on the markets to trade currency pairs.
These are the most common types of forex orders available on all online trading platforms:
- Market Orders,
- Limit (or pending) Orders,
- and Confirmation Orders,
The market order is the most reliable and simplest way to execute a trade on a financial market. It represents a trader’s request to either buy or sell an asset at the current market price.
It is considered the fastest way to open a position quickly on the market to take advantage of the most liquidity available. But the only downside to using market orders is the fact that a trader does not have a full control on pricing.
When a trader executes a market order, it simply means that he’s willing to buy the asset at the ask price and sell it at the bid price.
Using this type of trade orders means that the trader is willing to pay whatever price the market is offering with the current spread. This is why a trader must check the current ask-bid spread before executing a market order to avoid paying high costs.
For example, the bid price for USD/CHF is currently at 0.9840 and the ask price is at 0.9844. If you want to place a buy order at the market price, you will get your order placed at 0.9844 or higher.
The chart below shows an example of a market order placed on EURUSD chart. Here we used the market toolbox on the left corner of the chart to either buy or sell directly at the market price. In this example, we sell at the market price and as we can see the order was executed directly at the current price.
Unlike market orders, limit orders are trade orders that give traders more control over the entry prices.
A limit order is a complex order where traders have the ability to choose the price at which they want and place their orders on the market. They do that by placing a pending order that will be triggered later on when the current price matches the limit price order. This ensures the execution of the trade at the desired price.
On MetaTrader platform, when you click on “New Order” on the navigation bar you get to choose the type of orders you want to place and specify the entry, stop, and exit prices all in one place. In our case, we are going to choose “Pending Order” on the type section.
Then, we have to specify the type of pending orders. There are 4 pending orders to choose from:
- Buy Limit Order,
- Sell Limit Order,
- Buy Stop Order,
- Sell Stop Order,
1. Buy Limit Order
Buy limit orders are limit orders placed below the current market price.
Price retraces back down to trigger the order and reverses back up.
In order to buy the EURUSD at 1.22140, we need to place a buy limit order and wait for price to move down and trigger our limit order. Here in this example, the entry price (1.22140) is below the current price (1.22356), therefore, we need to use a buy limit order to place our trade.
2. Sell Limit Order
Sell limit orders are limit orders placed above the market price.
Price goes up to trigger the limit order and reverses back down.
On the next chart, the current price is at 1.22337, and to sell the market at 1.22570 we need to place a sell limit. After we place our sell limit order, we wait for price to retrace back up, trigger our trade, and retrace back down. Here we used a sell limit because our entry price is located above the current price.
3. Buy Stop Order
Buy stop orders are limit orders placed above the current market price.
Price moves up, triggers the pending order and continues moving higher.
To buy the EURUSD at 1.22490, we use a buy stop order to place our trade. The entry price (1.22490) is located above the current price (1.22343). We place a buy stop order and wait for price to retrace back up, trigger our stop order, and continue moving higher.
4. Sell Stop Order
Sell stop orders are limit orders placed below the current market price.
Price moves down, triggers the limit order and continues moving down.
To sell the EURUSD at 1.22255, we need to place a sell stop order because our entry price is below the current price (1.22339). We wait for price to move down, hit our stop order, and continue moving down.
A confirmation order is another type of trade orders where traders wait for more confirmations to enter a trade. Once the trader gets a market confirmation that the price is going in his direction, the trader place a market order at market price.
This type of orders is used in trading supply and demand zones. Traders wait for price to test the supply or the demand zone and open a market order when price crosses the proximal line on its way out of the zone.
To place a confirmation order, you need to follow two steps:
- First, wait for a candle to close inside the supply or demand zone.
- Next, wait for the following candle to execute a market order the moment it pierces its way out of the supply or demand zone.
Here’s an example of a confirmation order:
To use a confirmation order, we wait for price to pierce the supply zone in (1) and (2), then on its way out of the supply zone, we execute a market order in (3).
The 3 types of forex orders that we just discussed here are used to execute traders’ orders in financial markets by either buying or selling assets. Traders can choose the right trade order to place their positions based on market conditions.
Some prefer to use market orders to take advantage of the market liquidity, others wait to get the best bid or ask price to enter the market. These types of forex orders provide more flexibility and versatility to every trader.