The Forex Order Types: Limit, Stop, and Market

Forex Market Orders - How It Works

A market order is the most basic forex order type. Using this order will get you into or out of a trade immediately, at whatever price is available at the time.

When you execute a market order to buy, your forex broker will buy the number of lots you requested at the best available price someone is willing to sell at. This is called the offer or ask price.

If you enter a market order to sell, your broker will sell the number of lots requested at the best available price someone is buying at. This is called the bid price.

The order will keep executing at the best available price until the entire order is filled. This means when placing a market you don’t know the exact price you will end up paying.

Forex Market Order Example

Assume you want to buy one standard lot of EUR/USD. That is €100,000 worth of currency. The current bid is 1.125555 and the offer is 1.25557.

Your broker may also show you, or they may not, how much currency is available at those price levels. Since you are buying, and the best price someone is currently selling at is 1.25557, if you execute a market order it will start buying at that price.

Assume there’s only €50,000 at that price, then another €25,000 at 1.25558, and another €95,000 at 1.25559. Since you are buying €100,000, your market order will take the 50k, then the 25k, and then another 25K at 1.25559. The order is now “filled” or complete.

This results in an average buy price of 1.255775. This assumes no other orders entered the market while your order was executing, and all orders currently in place stayed there. Notice how the order keeps removing available volume/liquidity until your order is filled.

The difference between the price you expect and the price you get is called slippage. Slippage can result from your order moving the price, the price simply changing in the split-second you place the trade, or a combination of both.

Small orders typically have minimal slippage because they aren’t going to move the price. Large orders can move the price, resulting in greater slippage, like the above example showed. The order actually moved the price by 0.2 pips.

When to Use a Forex Market Order

Marker orders are useful when you want to enter or get out of a position right now. This could be because you like the price you can trade at this moment, or perhaps because your trading strategy is telling you to buy or sell right now.

Market orders also guarantee a “fill.” This means you will get the position you want — you just don’t know the exact price. That means if you really want to buy or sell right now, a market order will get that done.

Placing a Market Order

To open a new position, you can either click the “buy” or “sell” button, or click on a forex pair in your trading platform. Choose a market order and initiate the trade.

To close a position, each platform may be slightly different, but most work in a similar fashion. If you right-click on an existing trade and click “close”, the position will be closed via a market order. Alternatively, you can click the “x” next to the open position in your current trades list. This will also close the trade via a market order.

Forex Limit Orders - How It Works

A forex limit order is a “pending order” in that you set a price you want to buy or sell at, and if the price moves to that level, the order will be executed.

Unlike a market order, limit orders control the price you get. If you want to buy, a limit order can be placed below the current market price. If you try to put a limit order above the current price, your broker will typically give you an error message saying “wrong order type” or something similar.

If you want to sell at a certain price, use a limit placed above the current market price. Placing it below will cause an error with most brokers. Remember that buy limit orders execute at the buy limit price or below, and sell limit orders execute at the sell limit price or above.

Forex Limit Order Example

Assume you want to sell/short the USD/JPY at 131.50. The price is currently at 129.36, so the price you want to enter is some distance away from where the pair is currently trading.

You can set your limit near the current price or far away — it doesn’t matter. The order will only execute if the price reaches the limit price you set. Remember, in order to sell with a limit, the limit price you set must be above the current price.

If you wanted to buy the USD/JPY with a limit order, you could place it anywhere below the current 129.36 price. For example, you could place it at 129, or 128.75, or wherever your strategy tells you to enter.

When to Use a Forex Limit Order

A forex limit order is used when you want to buy at a price below the current market price. It is also used when you want to sell above the current market price.

Limit orders can also be “targets.” For example, if you just bought AUD/CHF, you could place a limit order to sell the position above the current price. If the price rises and reaches your limit order, you sell your position and lock in a profit.

If you are currently short AUD/CHF, you could place a limit order below the current price. If the price drops and hits your limit (target) order, your order is executed, the trade is closed and your profit is locked in.

Placing a Limit Order

To initiate a buy or sell using a limit order, either click the “buy” or “sell” button or select a forex pair in your trading platform. Select the limit order and enter the price you want to buy or sell at.

To close an existing position, double-click on the position to bring up some choices of what to do with it. Add in a limit price to get out of this position. Each platform is a little different, so play around with these orders in a demo account before switching to real capital.

Forex Stop Orders - How It Works

A forex stop order is a “pending order” where you set a price you want to buy or sell at, and if the price moves to that level, the order will be executed.

A stop order is used if you want to buy at a certain level (but not before) above the current price. The buy stop order will fill at the stop price or above.Alternatively, it is used if you want to sell at a certain level (but not before) below the current price. The sell stop order will fill at the stop price or below.

Forex Limit Order Example

Assume the USD/CAD has been trading between 1.25 and 1.26 for the last week. It is in a sideways channel and you want to enter a trade when the price breaks out of this range.

Therefore, you could place a buy stop at 1.2610, for example. Your order will sit there, pending, until (or if) the price rises to 1.2610. If the price reaches 1.2610, the order will trigger and will take any price it can get at 1.2610 or higher.

Similarly, you may want to go short if the price drops below 1.2490. You could place a sell stop order at this price. The order will execute if the price reaches 1.2490 and you will get whatever price is available at that movement at 1.2490 or below.

When to Use a Forex Stop Order

Buy stop orders are useful if you want to buy once the price moves above a certain level. Sell stop orders are useful if you want to sell once the price drops below a certain level. Stop orders can be used either to enter trades or to exit trades. When they are used to exit trades, they are called “stop loss orders”.

If you’re currently long EUR/GBP, you could place a sell stop loss below your entry price. If the price drops to that level, the order executes and gets you out of the trade. If you are currently short EUR/GBP, you could place a buy stop above your entry price. This limits the risk of the trade. If the price rises to the buy stop price, the order is executed and gets you out of the trade.

Placing a Stop Order

To enter a trade with a buy stop order, click on either the “buy” button or the forex pair, then place a buy stop order at a price above the current price of the pair. To enter a trade with a sell stop order, click either the “sell” button or a forex pair, then place a sell stop order at price below the current price.

To exit an existing long trade with a stop order, double-click on the existing trade and place a stop order below the current price. To exit an existing short trade with a stop order, double-click on the existing trade and place a stop order above the current price.

Entry, Stop Loss, and Target All on One Trade

Most brokers allow you to place an entry, stop loss, and target all at once.

The entry order can be a market, stop, or limit order. You can then attach a stop and a limit order to that order, which is equivalent to a stop loss and target. On most platforms, like MetaTrader4, when clicking buy or sell, you’re able to input your entry order criteria and also set a stop loss and target.

If you are buying, the stop loss will be below the entry price and the target will be above; if you are selling, the stop loss will be above the entry price and the target will be below.