When choosing a broker it’s important to know what type of forex trading order they accept. A trading order is how you enter and exit a trade. There are five different types of trading orders offered by most brokers:
- Market Orders
- Limit Orders
- Take Profit Orders
- Stop Loss Orders
- Trailing Stop Orders
A market order is an order which is executed right as it is placed. The price is determined using the market price of current spot. Market orders become open positions and have fluctuations in the market. Because of this, if the rate moves in opposite direction of what you set then the value of your position drops. You would see the loss in your account balance after closing your position.
Another type of trading order is a limit order. A limit order is when you you’ve placed an order to buy or sell a currency pair but only when particular conditions in the initial trade instructions are met. Until these conditions are not met then the order is thought of as a pending order and won’t have any impact on your margin calculation or account totals. In most cases, a pending order is used to automatically make an order if the exchange rates are at a certain level.
Take Profit Order
Take-profit orders close an open order once the exchange rate reaches the its desired threshold. These types of trading orders are used to secure profits when you cannot observe your open positions. If you close your position at the current market rate in a fast moving market, there will probably be a gap between the rate you set for your take profit order and the available rate.
Stop Loss Order
Take-profit orders aren’t the only trading orders which can benefit you and save you from further losses. Stop-loss orders can also help to avoid margin closeouts. The stop-loss order closes an open-position once the exchange rate goes against you and hits a level that you’ve specified. Stop-loss orders are used to reduce losses but they can’t completely prevent them. Similar to take-profit orders, if you close your trade in a fast market at the current market rate then there’s a chance there will be a gap between that rate and the rate for your stop-loss.
If trading is resumed on Sunday when your stop-loss is triggered then your trade is executed at what’s available as the current market rate. This may be lower than what you’ve set as your stop-loss rate which can cause additional losses.
Trailing Stop Order
Trailing stop orders are akin to stop-loss orders meanings they can be used to avoid margin closeouts and restrict losses. Another similarity to between stop-loss orders and trailing stop orders is that they close out a position once it moves in a direction that goes against you by a particular distance. The main feature of trailing stop orders is that the trigger price follows the market price on its own at a designated distance. This works in your favor because it increases your trade’s gain while simultaneously reducing its losses.