Order types and their use in forex trading

Order types and their use in forex trading

Risk management is vital in Forex trading. The tools of successful traders include the effective use of order supplements and combined orders. Without constant presence on the screen, they make it possible to limit losses, avoid unfavorable entry-level courses and secure profits already made without leaving the market.

Even if sudden, larger price gaps during trading are not the order of the day in the Forex market due to the practically infinite liquidity, market orders should be avoided. A market order is executed at the next best price – no matter how high or low it is. When trading in other markets such as CFD trading on indices, limited orders are essential.

Simple limit buy / limit sell orders are suitable to protect against purchase prices that are too high and sales prices that are too low. A course level is simply defined above or below which the position is not opened. If the limit level is violated, the order does not lose its general validity.

Price level

Price level

Stop buy limit orders are purchase orders that only take effect at a certain price level. For example, they are placed above relevant technical chart resistances. If the market breaks through the resistance, they ensure that the following impulse is automatically shared. Unlike a simple stop buy order, purchases are only made if an additional defined second price level is not exceeded. Once activated, a simple stop buy order is an unlimited buy order.

This also applies to stop loss orders. They carry the risk that the position in a short-lived V formation is triggered with considerable losses. This can be avoided with a stop loss limit order. Then, however, the consistent loss limitation is given up. Stop loss limit orders are therefore not advisable.

Profit position

In the case of an if-done (long) order, a price is defined, upon reaching which a long position is opened. If the order is executed, the position is automatically protected against large losses with a stop loss order. If-done orders are one of the most important instruments for traders. With the addition “One Cancels Other”, this order type can also be supplemented by another component. If an take-profit level is also set for an if-done / OCO order, either take profit or stop loss is carried out. The other order is deleted.

With Take Profit and Trailing Stop, profits made in the market can be realized automatically or at least partially protected against a rotating market. With a take profit, a fixed price level is set, upon reaching which the position is dissolved. A trailing stop is a dynamic stop loss that is (long) adjusted when prices rise. As a result, profitable positions can be held for a long time without the profits being endangered.