Forex Order Types

There are two types of orders in the Forex market:

• A Market order is a request for an operation at the current market price.
• A Suspended order is the request for an operation that will happen at the moment the price reaches a level expected by the trader.

Market orders can be divided into two kinds depending on who offers the quotation and who accepts the contract for it:

• Market order. Here the trader makes a request for operation at the current market price. A trader sees the quotations on his terminal and when he is satisfied with any of them he sends a request to his dealer to fulfill the operation at the market price he is satisfied with. If the quotation hasn’t changed a dealer agrees to the deal and the transaction is done immediately. If the quotation has changed the dealer offers another price. In general, a market order is where a trader offers a price and a dealer makes a decision whether to trade at that price.
• Quote order. With this order, it is the dealer who offers a quote to the trader. In this case the trader receives two quotations at once (Ask and Bid) from the dealer and decides whether to make a deal (buying or selling depending on which relevant) or he can refuse a deal. In general, a quote order is one where a dealer offers a price and the trader makes the decision whether to trade at that price.

Suspended orders also can be divided into two kinds (depending on the method of submitting an order):

Good Till Canceled orders (GTC) give instructions to a dealer to buy or sell a certain amount of currency at a previously appointed price. The order remains open until it is filled by the broker or cancelled by the trader. Order of this kind can close an existing position (partially or in whole) or open a new one. Besides that, if a GTC order closes one of your current positions in the same currency with reserve, a new order-opposite to the exceeded position-is opened.

Example: There was a previously opened position selling 400000 GBP/USD, then a trader placed a GTC order to buy 500000 GBP/USD. After the opening the order, the first position closed and a position buying 100000 GBP/USD was opened instead. If a GTC order was placed in the same currency buying the same amount of money (that is, 400000 GBP/USD), there would be no positions left open.

Pending orders are linked to a position. They differ from GTC positions because positional order levels are defined by price limits, rather than time limits, that the trader defines. Naturally if a position closes by some other means, all positional orders are automatically canceled. This makes sense because, if the original position is closed, positional orders do not have anything to be applied to.

There are two subtypes of pending orders.

Stop loss or Stop

These orders are meant to insure a trader from making excessive losses. In fact, an order of this kind is the command to a dealer to close the defined position if the loss reaches an appointed level.

Sometimes a pending order is used not only for minimizing losses. It can also be used to ‘lock in’ profits on a successful trade by preventing the trade from subsequently falling to a level at which it
would become unprofitable.

Take profit or Limit

This is an instruction from a trader to close a previously opened position when the potential profit has reached a certain pre-appointed level. This type of order is sometimes used to “catch” the market before a reversal.

A take profit order can also be used for minimizing losses. If a position is already making a loss a trader can place a take profit order at a bit higher rate than the current one. The strategy here is that future fluctuations in the exchange rate will execute, and thus decrease the losses by closing the position at a more advantageous rate.