What is an Order Type?
The term ‘order type’ refers to how you will enter or exit a trade.
Order types are really useful as your broker will automatically close your open position when the price reaches a certain point.
For example, if you believe that the price will hit a certain level, and you don’t have the time to watch the market all day then it’s good to set up an order type to tell your broker you want this position closed once the price reaches this level.
You can also benefit from random and quick spikes in price which you may not have the time to react to.
There are loads of different order types, so we have complied a list of the ones we think you should know.
This type of order instructs a broker to immediately execute (close your position) at the best available price. Most of the time when you place a market order it will be executed at the current market price. However at times during news events, volatility increases and a market order may be executed at the next best available price.
Limit Entry Order
A limit entry order is an order placed to either buy below the market or sell above the market at a certain price.
You would set a limit entry order if you wanted to wait and see if the price will go any lower before opening a long position (vice versa if you want to open a short position).
EUR:USD is currently trading at 1.12768 you want to open a long position, but you think that the price will go down 1 PIP before it goes up. Therefore, you set a buy limit entry order at 1.12758 ~ 1 PIP below the current price.
Stop Entry Order
A stop entry order is an order placed to buy above the market or sell below the market at a certain price.
You would set up a stop entry order if you thought that, if the price was to go up to a certain point, then you would want to open a long position to get in on this trend (vice versa if you want to open a short position).
GBP:USD is currently trading at 1.27290 you believe that if the market goes any lower than you would want to open a short position. Therefore if the price goes down by 2 PIPs then you will want to open a short position. Therefore, you set a sell stop order at 1.27270 ~ 2 PIPs below the current price.
- The term %E order type‘ refers to how you will enter or exit a trade.
- Order types are really useful as your broker will automatically close your open position when the price reaches a certain point.
- There are loads of different order types, make sure you remember the ones we have mentioned above.