How to Trade Forex - Orders (Advanced)

3
Oct

The Forex Trading Floors Arcade covered basic order types in the 'How to Trade Forex: Order Types' blog on the 23rd and this week we will be focusing on more advanced order types.

Trailing Stop

A trailing stop is a type of Stop-loss order attached to a trade that moves as price fluctuates. Let us say that you have decided to short USD/JPY at 90.80 with a trailing stop of 20 pips. This means that originally, your stop loss is at 91:00. If price goes down and hits 90.50, your trailing stop would move down to 90.70.

Just remember though, that your stop will STAY at this price. It will not widen if the price goes against you. Going back to the example, with a trailing stop of 20 pips, if USD/JPY hits 90.50, then your stop would move to 90.70. However if price were to suddenly move up to 90.60, your stop would remain at 90.70.

Your trade will remain open as long as price does not move against you by 20 pips. Once price hits your trailing stop, a stop-loss order will be triggered and your position will be closed.

Good Till Cancelled (GTC)

A GTC order remains active in the market until you decide to cancel it. Your broker will not cancel the order at any time. Therefore, it is your responsibility to remember that you have the order scheduled.

Good for the Day (GFD)

A GFD order remains active in the market until the end of the trading day. Because foreign exchange is a 24-hour market, this usually means 5:00pm EST since that's the time U.S markets close, we would recommend you double check with your broker.

One-Cancels-the-Other (OCO)

An OCO order is a mixture of two entry and/or stop-loss orders. Two orders with price and duration variables are placed above and below the current price. When one of the orders is executed the other order is cancelled.

Let's say the price of EUR/USD is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls below 1.1985. The understanding is that if 1.2095 is reached, your buy order will be triggered and the 1.1985 sell order will automatically be cancelled.

One-Triggers-the-Other

An OTO is the opposite of the OCO, as it only puts on orders when the parent order is triggered. You set an OTO order when you want to set profit taking and stop loss levels ahead of time, even before you get in a trade.

For example, USD/CHF is currently trading 1.2000. You believe that once it hits 1.2100, it will reverse and head downwards but only to 1.1900. The problem is that you will be gone for an entire week because you have to join a basket weaving competition at the top of Mt. Fiji where there is no internet.

In order to catch the move while you are away, you set a sell limit at 1.2000 and at the same time, place a related buy limit at 1.1900, and just in case, place a stop-loss at 1.1200. As an OTO, both the buy limit and stop-loss orders will only be placed if your initial sell order at 1.2000 gets triggered.

In conclusion

The basic order types (market, limit, entry, stop-entry, stop loss, and trailing stop) are usually all the most traders ever need.
Unless you are a veteran trader (don't worry, with practise and time you will be) don't get fancy and design a system a trading requiring a large number of orders sandwiched in the market at all times.
Stick with basic information first.
Make sure you understand and are comfortable with the broker's order entry system before executing a trade.
Check with your broker for specific order information and see if any rollover fees will be applied if the position is held longer than a day.
Keeping your ordering rules simple is the best strategy.
DO NOT trade with real money until you have an extremely high comfort level with the trading platform you are using and its order entry system.
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