XM does not provide services to residents of the United States of America.
Understanding these tools enables traders to navigate the fast-paced forex market with greater confidence and discipline, ultimately improving their chances of success.
Placing an order is not always simply about clicking a buy or sell button. There are many other ways of doing it. These allow traders to be more precise in their entry and exit strategies, and they increase traders’ efficiency by eliminating the need to keep monitoring the markets in order to enter their trades at the desired price.
So what are the different order types in forex trading and how can you make use of them? In this article, we will cover everything you need to know about market orders, limit orders and stop orders. But first things first—let us start by explaining what a forex order is.
Jump to a Section
- What Exactly Is a Forex Order?
- Market Orders
- Limit Orders
- Stop Orders
- Difference Between Limit and Stop Orders
- How to Place a Forex Order
- Final Thoughts
What Exactly Is a Forex Order?
A forex order is an instruction you give to your broker to buy or sell a currency pair. But it’s not only that. It’s an instruction you give to your broker to buy or sell a currency pair at a specific price or under certain conditions. These conditions can be met at the moment you place your order, or they can be met at a later time.
This probably already gives you an idea of how order types differ from each other. Each one serves a different purpose and each one suits different trading needs. What are the order types that you will be using in your day-to-day trading? Let’s go over them one by one.
Market Orders
A market order is an instruction given to a broker to buy or sell a currency pair immediately at the current market price (or at the best available price). They are executed instantly and they ensure that the trade is completed as quickly as possible.
Market orders are typically used when traders want to enter or exit positions without delay, prioritising speed over price precision. They’re especially used by scalpers and day traders who closely monitor the markets, and enter and exit trades in a short period of time to make profits from small price movements.
With market orders, trades are opened or closed instantaneously. Let’s say that you are executing a trade to buy 0.01 volumes of EUR/CHF. You see that the buy price is 0.93949 and you click to confirm your order.
The broker then receives your order and executes your trade immediately at the current market price.
Limit Orders
A limit order is an instruction given to a broker to buy or sell a currency pair at a specified price or better. It is a sort of pending order that sets the maximum or minimum price at which you are willing to buy or sell.
For a buy limit order, the trade will only be executed at the limit price or lower, while for a sell limit order, the trade will only be executed at the limit price or higher.
Limit orders allow traders to control the price at which their trades are executed, providing more precision and control over their trading strategy. They are also helpful in the sense that they automate the trading process. Instead of constantly monitoring the markets to wait for the price to reach your desired level, you can set a limit order, and whether you monitor the markets or not, it will be automatically executed when that happens.
Limit orders are especially useful if your strategy involves buying at support levels or selling at resistance levels, as it helps you automate this by executing trades at those key price points. Let’s assume that the price of EUR/CHF is moving between two strong levels of support and resistance. You believe that the price will fall down to 0.93000 before heading back up. So, you set a buy limit order to execute your trade at that price level.
The broker then receives your order and executes your trade at 0.93000 or lower.
Stop Orders
A stop order is an instruction given to a broker to buy or sell a currency pair when it reaches a specified trigger price called the stop price.
A buy stop order is placed above the current market price while a sell stop order is placed below the current market price. By using stop orders, you can enter a buy trade as the price rises, or enter a sell trade as the price drops.
For instance, let’s say that EUR/CHF is currently trading at 0.93691, and you think that if the price goes up to 0.93700, it will keep rising. You place a buy stop order at 0.93700.
If the price reaches this level, your order is triggered, and your position is automatically bought, allowing you to participate in the upward trend.
Similar to limit orders, stop orders are a type of pending order. This means that the order process is automated, and instead of waiting for the market to reach your desired price, you can enter a stop price and let the broker automatically open your position when that trigger price is reached.
Are you wondering in what ways stop orders and limit orders are different from each other? Let’s discuss.
Difference Between Limit and Stop Orders
A limit order is used to buy or sell a currency pair at a specified price or better. In other words, it aims to enter or exit a trade at a more favourable price than the current market price. A stop order, on the other hand, is used to trigger a trade once the market price reaches a certain level, which is not as favourable as the current market price.
In the image above, if you take the red dot to be the current market price, you can see the difference between the limit and stop prices. The limit order is set at a more favourable price than the current price whereas the stop order is set at a less favourable price than the current price. As for their use cases, you set the limit order when you believe that the price will bounce back, whereas you set the stop order when you believe that the price will continue in the same direction.
How to Place a Forex Order
To place a forex order, follow these steps:
- Go to the instrument you want to trade on the XM app.
- Pick between the “Sell” and “Buy” options (“Sell” if you want to enter a short position, “Buy” if you want to enter a long position).
- Click the “+” button at the bottom of your screen.
- There will be a pop-up asking you if you would like to enter a market order or a pending order. Pick the option that you want.
- Enter the volume you would like to trade.
- If you have chosen to enter a pending order, enter the price at which you would like to open your trade.
- Set stop-loss or take-profit orders if you wish to do so.
- Click to confirm your order.
Final Thoughts
There is more than one way of placing an order in forex trading. Each order type, whether it’s a market, limit, or stop order, serves a specific purpose—helping traders control the price at which they enter or exit trades. Understanding these tools enables traders to navigate the fast-paced forex market with greater confidence and discipline, ultimately improving their chances of success.
Ready to Start Trading?
Access a wide range of assets with a global broker by your side. Buy and sell currencies, stocks, indices, commodities and much more on our user-friendly and innovative platforms.
Frequently Asked Questions
1. What are forex orders?
Forex orders are instructions that traders give to their brokers to buy or sell a currency pair at a specific price or under certain conditions. These orders are essential tools in forex trading, enabling traders to enter or exit positions, and execute their trading strategies automatically.
2. How many types of forex orders are there?
There are various types of orders. The most common ones are market orders, limit orders and stop orders. At XM, we support all of them.
3. What is the most common type of forex order?
The most common type of forex order is the market order. A market order is executed immediately at the current market price, making it the go-to choice for traders who want to enter or exit a position quickly.
Read More
Forex Account Types: Which One Should You Choose?
Forex Trading Sessions and the Best Times to Trade
