In order to trade, you have to buy or sell at the current market price or use pending orders to be executed at a particular price. There are four types of Forex trading orders: market order, one cancels the other order, limit order, and stop order.
Buy Limit Order
If the currency or security for trading reaches the limit price, the limit order becomes a market order. It is used to buy below the current price when the value is believed to increase after dropping at the limit price. It sets the maximum or minimum value you are willing to buy a certain stock.
Example: Stock currently trading at $100; limit price at $90.
You wait for the right buying opportunity when the price drops at $90 or lower to buy.
Buy Stop Order
If the currency or security for trading reaches the stop price, the stop order becomes a market order. It is used to buy above the current price when the value is believed to increase continuously. It allows you to limit loss.
Example: Stock currently trading at $100; stop price at $110.
You are waiting for the right buying opportunity but the price increases and does not drop. If the value reaches $110, you buy to control or lessen incurring loss.
Four Types of Trading Orders
The trading orders offered by brokers for buying and selling in Forex are as follows:
- Market Order
It is sometimes referred to as an unrestricted order. It is used to buy or sell at the current market price. Caution is needed because there can be a disparity between the actual price and the price when the order is given. It is the default option (source).
- One Cancels the Other Order
It is a pending order used in case of simultaneous limit order and stop-loss order. The limit order is used and the currency is sold for profit if the market reaches the limit price. The stop-loss order is used when the market falls in order to avoid loss.
- Limit Order
It is a pending order used to buy or sell at the limit order price. It is used to buy below the market price or sell above the market price. It can assure that the trade to be made is at a specific price or better.
- Stop Order
Also known as stop-loss order, it is a pending order used to buy or sell at the stop order price. It is used to buy above the market price or sell below the market price if the market behaves contrary to the broker’s thought. This is advantageous for investors who cannot actively monitor their stocks for some time.