When you want to buy or sell a currency pair there are different types of orders that you can use to customize your trade execution to fit your strategy.
Market Order
The first type of order is a market order where you buy or sell at whatever price the market will be at. The one problem with this type of order is that you are susceptible to price fluctuations that might occur while your order is being executed. Lets say you put in a market order for a currency pair but as soon as you did, the pair raised 20 pips. If the trade hadn't been fully executed yet, you would have no choice but to buy the pair at a 20-pip premium.
Limit Entry Order
A limit entry order is where you place an order to buy at a currency pair at a price below the current market price, or if you're selling, sell above the current market price.
Stop Entry Order
A stop entry order is the opposite to a limit entry order in that you are restricting to buy if the price goes above the currency market price, or sell if the price goes below the current market price. A good example of when a stop entry order might be used is when you would like to buy or sell if a price breaks through its resistance or support levels. With a stop entry order your trade will only go through if the support or resistance levels are broken.
Stop Loss Order
Another type of order is a stop loss order. A stop loss order is where you set a price at which if a price drops below that price level, you will automatically sell that security. Stop loss orders are used to prevent big losses and are an important part of trading as it allows you to limit the downside of any trade without having to constantly monitor price changes.
Trailing Stop Loss Order
A trailing stop is similar to a stop loss order in that it limits the downside to any trade, but in this case the level at which the stop occurs fluctuates. In most cases a trailing stop is set at a fixed level below the current price. For example, if you set a trailing stop and the underlying asset increased in price, then the trailing stop would also increase by the same amount that the asset increased by. The only time a stop would occur and your position closed out would be when the change in price of an asset changes by the same or more than the amount of the stop loss. If you stop loss was set for 50 pips below your current price, then only if a pair decreased by 50 or more pips within a defined time period would the stop occur.
Most of these order types apply to more than just forex and can be used when trading stocks and commodities as well. There are also some order types that tend to be used specifically used for forex. These are:
Good 'Till Cancelled Order
Good 'Till Cancelled (GTC) is an order type that allows you to cancel the order. The benefit of this is that you have less downside as you have more control over your order if price fluctuations occur.
Good for the Day Order
A Good for the Day (GFD) order is also similar to a market order but the order automatically expires at the end of the trading day, which is most often the closest trading market for your broker (5:00 pm EST for New York brokerages for example). This type of order is good if you want to minimize the downside of leaving your trade open if there is limited liquidity in the markets.
One-Cancels-the-Other Order
A One-Cancels-the-Other (OCO) order is an order when you have a mixture of multiple entry or stop loss orders but would only like one to go through. For example if you believe that an upcoming economic report will cause a pair to either have a lot of volatility or non at all, and you are not certain which direction the volatility will be in, then you might put in two stop entry orders. One would be to buy if the price goes above a certain point, and one to sell if the price goes below a certain point. A good addition to this though would be to put in a one-cancels-the-other order, which would cancel out one of the stop entry orders if the price volatility does occur. If you were to keep open one of the orders then you might be exposed to buying in at prices that you don't necessarily want to.
One-Triggers-the-Other Order
A One-Triggers-the-Other (OTO) order is the opposite of a One-Cancels-the-Other order, in that when one trade happens, the other trade that is in place is automatically executed as well. This order type is normally used when you want to place stop loss and profit taking levels ahead of time.
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