Types of Orders to Trade Currencies

Some of the orders available to day trade stocks are the same for currencies (orders will be covered during our new series of forex training webinars). The main types of orders are:

• Market Order - this is an order to buy or sell a currency at the current market price. This means that the trader will be buying at the Ask and selling at the Bid. This is the most widely used order when day trading currencies. When placing a market order, the currency trader specifies the currency pair that he wants to buy or sell and the number of lots or contracts he wants to trade. With most currency trading platforms, this order is placed with a single click and is executed almost instantly. This order works the same for both stocks and currencies.
  
  
• Limit Order - an order to buy or sell a given currency at a specified exchange rate or better. When a buy limit order is placed, the trade cannot be executed at a price that is higher than the specified rate. When a sell limit order is entered, the currency cannot be sold below the specified exchange rate. This is the same as the limit order placed when day trading stocks.
  
  
• Stop Order - this order works the same for stocks and currencies. It is activated when a specified exchange rate (the stop price) is reached. This a very useful order when day trading. It can be used to enter a new long position when the price of a currency goes above a certain rate and a short position when the price drops below a certain point. The stop order can also be used to limit losses or protect profits when the price of a currency goes against the trader. This is why it is also referred to as a "stop loss" order. If a day trader that is long EUR/USD wants to limit his loss, he would place a sell stop order below the current market price by a certain amount. If a trader that is short the EUR/USD is making money and wants to protect some of his profit, he would place a buy stop order above the current price of the euro by a given amount.
  
  
• One Cancels the Other (OCO) Order - this is an order that is common in the forex and futures market. It is actually two separate orders that are linked together but are placed as one order. When one of the linked orders is executed, the other order is automatically cancelled by the system. A simple example will make this a bit more clear.

  Example: The USD/JPY = 108.40. A day trader wants to enter a long position if the exchange rate breaks a resistance of 108.90 or wants to sell short if the price breaks the support of 108.00. A trader can use an OCO order to accomplish this. Let's say that the two linked orders that make up the OCO order are as follows:

  • Buy 1 lot USD/JPY Stop 108.95
  • Sell 1 lot USD/JPY Stop 107.95

    This means that if the dollar-yen gets to 108.95 (i.e., breaks the 108.90 resistance), the trader will buy one contract and the second order will be cancelled. Likewise, if the price of the dollar-yen currency pair drops to 107.95 (i.e., breaks the 108.00 support), the trader will sell one lot of USD/JPY and the first order will be cancelled.

The One Cancels the Other order can also be used with a combination of limit and stop orders for other purposes.

• If Then OCO - this order is a more sophisticated version of the OCO order. It is a combination of three separate orders (the If order and the two orders that make up the OCO). Only if the "If" order is executed is the OCO order placed. Let's say that a day trader wants to buy GPB/USD if it goes above 1.7540 and then wants to sell it at a profit if it reaches 1.7650 and at a loss if it drops to 1.7520. The If Then OCO order will look like this:
  
  If Buy 1 lot GPB/USD Stop 1.7545 (order that gets executed when the price reaches 1.7545), THEN execute the following:
  
  OCO Portion of the Order
  Sell 1 lot GPB/USD Limit 1.7650
  Sell 1 lot GPB/USD Stop 1.7520

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