Types of Forex Order: Part 2

Stop-Loss Order

As the limit order is set to bag in profit when the price reaches your desired price, a stop-loss order is executed to put a ceiling on the loss. When you execute a stop-loss order, you are basically specifying the maximum loss you can take in the current open position beyond that the currency should sell automatically. Stop-loss is set opposite to where you expect the price to go.

For Example: You want to buy EUR/USD at 1.0886 and to limit the loss you put a stop-loss at 1.0856. This means if the price goes against you, the sell order will automatically execute at 1.0856 with a loss of 30 pips.

Trailing Stop Order

The trailing stop order is rarely executed, but very helpful in managing loss. This type of stop loss order is variable and is renewed automatically. Let us understand with an example:

Suppose you buy EUR/USD at a price of 1.0886 with a trailing stop of 50 pips. In this type of order, the forex trading software will set the stop-loss according to the current market price, and your account will keep on showing a variable unrealized profit. In this case, the original stop loss will set at 1.0836. If the price goes up to 1.0906 (i.e. 20 pips), the new stop-loss is set at 1.0856.

In the trailing order type, the position is automatically closed when the price moves against you by 50 pips or whatever value set by you.

Take Profit Order

This is simply the price at which we want to close our position and bag the profit.

There are some weird forex orders which are rarely used, but you should know about them. These are:

Good Till Cancelled (GTC)

GTC order is needed to be canceled manually; otherwise, it will remain active in the market.

Good for the Day (GFD)

Good for the day order remains active in the market for one trading day. Although trading can be done 24 hrs in the forex market, many brokers end the trading day at 5:00 pm EST as the US markets close at this time. You need to check with your broker about these terms.

One-Cancels-the-Other (OCO)

This type of order is a mixture of two orders, or you can call it a mixture of two stop losses. The orders are placed above and below the current market price (CMP). This is the safest way to open a position.

For Example: The current price of EUR/USD is 1.0886. While executing OCO, you place two orders at this CMP by placing a buy order at 1.0916 and sell order at 1.0856. It the price hits 1.0916, buy order will be executed and sell order will be cancelled automatically. And if the price moves down to 1.0856, sell order will be implemented and buy order will be cancelled automatically.

One-Triggers-the-Other (OTO) or One-Sends-the-Other (OSO)

OTO is a type of order in which multiple orders can be placed, but unlike OCO, OTO executes further order only when the parent order is executed. Using this type of forex trade you can set profit-taking and stop-loss even without getting into the trade. Let’s make it clearer with an example.

Suppose, the CMP of an EUR/USD is 1.0886

1)    At this point, you want to sell to open a position which means you are shorting and expecting it to go down.

The next trading instructions in the queue can only be triggered when the first instruction gets executed. So, your next instructions could be like this:

2)    You put a stop-loss at 1.0986 which means final buy should be at this price.

3)    To make profits, you put a limit order at 1.0786 which means the final buy should be at this price.

See, how the instructions are triggered. If the sell instruction executes at 1.0886 then point (2) and (3) gets executed automatically i.e. One-Triggers-the-Other (OTO). Usually, one of the two instructions gets cancelled so either (2) or (3) will execute as you can either stop the loss or make a profit.

/ Stop Loss   BUY @ 1.0986 (2)

SELL @ 1.0886 (1)

\ Limit Order BUY @ 1.0786 (3)

Chapter 6…..Currency Pairs: Part 1…..>>

 

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