In Forex, order types simply refer to the manner of how and when trades are executed. In this guide, we will extensively cover all the different order types available for you to use, discuss how they can be used for risk management, whether they are free to use, and which order types are most suitable for different trading scenarios.
Quick List of Forex Order Types
- Market Order: Buys or sells the pair immediately at the current market price
- Limit Order: Buys or sells the pair only at a specific price or better
- Stop Order: Triggered when the price reaches a specific level
- Stop Loss Order: Cuts your losses by automatically closing a trade once it reaches a certain level against your position
- Take Profit Order: Locks in your profit by automatically closing a trade once it reaches a desired price level
- Fill or Kill Order: Buys or sells the pair at a specified price with your desired position size
- Trailing Stop Order: Automatically adjusts your stop price to lock in some profits as the market moves in your favor
- Good Till Canceled Order: The order remains active in the market until it is filled or you cancel it
Forex Order Types: A Comprehensive Look
Here’s a detailed coverage of the eight forex order types:
1. Market Order
First, a market order is the most common order type not only in forex but also in all other financial markets (e.g., stock market, cryptocurrency, etc.) Unlike other order types, a market order buys or sells the forex pair immediately at the current market price. Note, however, that while it guarantees trade execution, it cannot guarantee the exact price due to potential slippage (especially on volatile forex pairs).
Example #1: Buy Market Order
Suppose you are bullish on EUR/USD (i.e., you think it will go up), which is currently trading at 1.0433. By placing a buy market order, your order will immediately be filled at or near 1.04337. This is because if the current volatility is high, the price changes quickly, and your order may be filled at a slightly different price (for example, 1.0433 instead of 1.0433).
Example #2: Sell Market Order
In contrast, if you are bearish on EUR/USD (i.e., you think it will drop), and it is currently trading at 1.03955, you can then place a sell market order. Similar to buy market order, your order will be filled immediately at or near 1.0396. Again, there may be a slight difference in price due to volatility (for example, your order is filled at 1.0396 instead of 1.3955).
2. Limit Order
Second, a limit order buys or sells the forex pair only at a specified price or better. Unlike market orders, which are sent to the market immediately, limit orders will only be filled at the specified price you choose. Nevertheless, while it guarantees the price, limit orders cannot guarantee trade execution—as your specified price may not be reached within the trading period.
Example #1: Buy Limit Order
Suppose you want to trade EUR/USD, which is trading at 1.396. If you believe the pair’s price will drop before going up, then you can place a limit order at 1.0392. Your order will then be executed if the price indeed drops to 1.0392 or lower. Otherwise, if the price does not reach 1.0392 within the trading period, then your order will be forfeited.
Example #2: Sell Limit Order
Using the same forex pair, if you instead believe EUR/USD, which is trading at 1.0398, will go up before going down, then you can place a sell limit order at 1.0399. Your order will then only be executed if the price reaches 1.0399 or higher. Otherwise, similar to a buy limit order, if the price does not reach 1.0399 within the trading period, then your order will be forfeited.
3. Stop Order
Third, a stop order is triggered when the forex pair reaches a specific price level. Once the pair reaches your specified price level, your order becomes a normal market order and is immediately executed at the current market price. This order type is useful when the price breaks a key structural level (i.e., support or resistance) and signifies a potential breakout or breakdown.
Example #1: Buy Stop Order
Using the same forex pair, suppose you want to trade EUR/USD, currently trading at 1.03993, and you expect it to break above the 1.0404 price level. In this case, you can place a buy stop order at 1.03997 (just above this price level). Your trade will then activate and execute as a market order if the price reaches 1.03997 or higher. Note, however, that since a stop order technically becomes a market order upon activation, your trade may experience slippage, executing your order near 1.03997 but not necessarily exactly at it.
Example #1: Sell Stop Order
In contrast, if you want to trade EUR/USD, currently trading at the same price level of 1.0399, but you expect it to break below 1.0390, you can place a sell stop order at 1.0395 (just below this price level). Your order will then be activated and executed as a normal market order once the price breaks 1.0395 and reaches 1.0395 or lower. Otherwise, your order will be forfeited.
4. Stop Loss (SL) Order
Fourth, as the name implies, a stop loss order is designed to stop you from potentially incurring larger losses when the market moves against your position. This is also considered a risk management tool designed to minimize your losses when you are wrong about a trade.
Example:
Suppose you bought EUR/USD at 1.0401 and set a stop loss order at 1.0400. In this case, the trade closes automatically if the pair’s price drops to 1.0400—limiting your potential losses if the pair continues to go down afterward.
5. Take Profit (TP) Order
Fifth, a take profit order locks in your profit by automatically closing a trade once the price reaches your predetermined profit level. In other words, the trade goes to your favor. This order type is usually placed alongside a stop-loss order.
Example:
Similar to our previous example, suppose you bought EUR/USD at 1.0414 and set a stop loss order at 1.0400 and a take profit order of 1.2060. In this case, if the trade moves in your favor and rallies to 1.0404, it automatically closes and secures your profits.
6. Fill or Kill (FOK) Order
Sixth, a fill or kill (FOK) order buys or sells the forex pair at a specified price with your desired position size. If your desired position size cannot be filled, then the order will be forfeited altogether (hence why it’s called “Fill or Kill”). This type of order is designed to prevent partial fulfillment, which often occurs with relatively large order sizes.
Example:
Using the same forex pair, if you place a fill or kill buy order for EUR/USD at 1.2020 for 100,000 units, then the trade must execute fully at 1.2020. If, for example, only 80,000 units are available at that specific price (and the other 20,000 units cannot be filled), then the order is canceled entirely.
7. Trailing Stop Order
Seventh, a trailing stop order automatically adjusts your stop price to lock in some profits as the trade moves in your favor. In essence, this type of order is designed to protect your profits while at the same time allowing the trade to run.
Example:
Using the same forex pair, if you buy EUR/USD at 1.2020 with a 40-pip trailing stop, the initial stop is set at 1.1980. If the trade moves in your favor and the price goes up to 1.2060, your stop subsequently moves to 1.2020, securing a breakeven. If the price goes up further to 1.2100, then your stop now moves to 1.2060, locking in a guaranteed profit of 40 pips wherever the price goes next.
8. Good Till Canceled (GTC) Order
Lastly, a good till canceled order remains active in the market until it is entirely filled or you cancel it manually. This order type is commonly used by longer-term traders who wait for a pair to reach a specific price level—often one that is far from the current price and unlikely to be hit within the next trading periods.
Example:
Using the same forex pair, suppose EUR/USD is trading at 1.2020, and you place a GTC limit order at 1.1890, anticipating a sustained drop in price. In this case, the order stays active until either the price reaches 1.1890 and is then executed or you decide to cancel the order manually.
It is very important to know all order types in Forex trading. If used correctly, you can achieve significantly higher profits and reduce risk.
Which order types can I use for risk management?
Among these eight order types in forex, the following can be used specifically to help you manage forex risk:
1. Stop Loss Order – this is the most prevalent risk management tool as it is designed specifically to minimize your potential losses when the trade moves against your bias.
2. Trailing Stop Order – This order technically protects your profits when the trade goes in your favor. That said, it also protects you against sudden, volatile price swings that could quickly move against your position and beyond your entry price.
3. Limit Order – Although not specifically designed for risk management, limit orders can help ensure that you only enter trades at favorable prices (i.e., with a good risk-reward ratio).
Are order types free to use?
Yes, the eight order types we covered are generally free to use on most forex trading platforms. That said, some brokers may impose specific restrictions or fees on more advanced order types, such as guaranteed stop-loss orders, which protect you against slippage but may come with an additional cost.
Finally, if you want to dive into specific trading strategies that utilize order types in forex as well as explore other advanced concepts in forex trading, we recommend visiting our additional resources at www.wrtrading.com.
