When trading, you'll open and close positions using orders.
What is an order?
An order is an instruction to execute a trade. You use them to tell your broker or trading provider when you want to open or close positions. There are a few different types of orders available and learning how they all work is an important part of understanding the markets.
Traditionally, investors gave orders to brokers over the phone. But the rise of web trading means most traders today raise orders using online trading platforms.
If you've been using your demo to buy and sell as you learn with Trading Academy, then you've been placing orders.
We're going to look at all the standard types of orders you might use in day-to-day trading. Starting with the simplest: market orders.
The most basic type of order is the market order, which tells your provider to execute at the best price available at the time. If EUR/USD is at 1.0745/1.0746, using a market order is an instruction to execute your trade as close to that level as possible.
You can use market orders to open or close a position.
But what if you didn't want to trade at the current market price? You might, for example, think that buying EUR/USD is a great opportunity – but only if it drops to 1.0699. You could watch Eurodollar and open a market order when it hits 1.0699. Or, you could use an entry order.
Entry orders automatically open a position when the market hits a pre-determined level set by you.
This is particularly useful for traders looking to buy/sell at a specific price and who don't want – or don't have the time – to monitor the markets constantly until this level is reached.
There are four types of entry orders: buy stops, buy limits, sell stops and sell limits.
Buy stops instruct your broker to open a long position on a market when it hits a specified price above its current price.
Buy limits open a long position when the market hits a specified price below its current price.
Sell stops open a short position on a market when it hits a specified price below the current one.
Sell limits open a short position when the market hits a specified price above the current one.
Stops vs limits
You'll hear the terms stop and limit used a lot when it comes to orders.
-Stop means an order that will execute at a level that is worse than the current price
-Limit means an order that will execute at a level that is better than the current price
«Worse» or «better» doesn't have to mean «below» or «above», however. Take our buy and sell limit entries above. When you're going long, a more favourable level to open at is below the current price – you'll make more profit if you open there. But if you're going short, it's above the current price.
Good 'til when?
As well as deciding your trade direction, quantity and level, you can decide how long an entry order will remain active before your provider cancels it. The three options you'll see on the FOREX.com platform are good 'til cancelled (GTC), good until the end of the day (GTD) and good 'til time (GTT).
Good 'til cancelled (GTC)
If you choose GTC, then your entry order will remain active until you cancel it manually, the market expires, or it is triggered. That could mean it is still active weeks or months after you first place it.
Good until the end of the day (GTD)
GTD orders, meanwhile, will automatically cancel at the end of the trading day. This is useful if you think that your chosen opportunity won't last – with a GTD, there's no risk of you forgetting to cancel and ending up with an unwanted trade.
Good 'til time (GTT)
GTT give you maximum flexibility by enabling you to choose the precise time and date that you want your order to remain active. If the market hits your chosen level in that timeframe, your order will trigger. If it doesn't, your order will cancel.
We're going to look at all the standard types of orders you might use in day-to-day trading. Starting with the simplest: market orders