Forex Order Types Explained: Market, Limit, Stop, and Advanced Orders
Understanding order types is fundamental to forex trading. The right order at the right time can mean the difference between catching a perfect entry and missing the trade entirely. This comprehensive guide covers every order type available to forex traders, from basic to advanced.
Why Order Types Matter
Different market conditions require different entry and exit strategies:
- Trending markets: You might use stop orders to enter on breakouts
- Ranging markets: Limit orders work well at support and resistance
- Volatile conditions: Stop losses and take profits become essential
- News events: Pending orders execute when you're not watching
Mastering order types gives you precision and control over your trading.
Market Orders
What Is a Market Order?
A market order instructs your broker to execute immediately at the best available price. When you click "Buy" or "Sell" in your trading platform, you're typically placing a market order.
How Market Orders Work
You want to buy EUR/USD
Current quote: 1.1050/1.1052 (bid/ask)
You place a market buy order
Execution: Filled at 1.1052 (the ask price)
Advantages
- Immediate execution: Your order fills instantly
- Guaranteed fill: You will enter the position (in normal market conditions)
- Simplicity: No price decisions needed
Disadvantages
- Slippage: During volatility, you may get a worse price than displayed
- Spread costs: You always pay the spread (buy at ask, sell at bid)
- No price control: You accept whatever price the market gives
When to Use Market Orders
- When you need to enter or exit NOW
- During high liquidity periods when slippage is minimal
- For stop losses that must be executed regardless of price
- When the current price is acceptable and you don't want to miss movement
Pending Orders Overview
Pending orders wait until price reaches a specified level before executing. They're essential for traders who can't watch charts constantly and for implementing strategic entries.
Two main categories:
- Limit orders: Execute at a better price than current
- Stop orders: Execute at a worse price than current (breakout entries or stop losses)
Limit Orders
Buy Limit Order
A buy limit order is placed BELOW the current market price. It executes when price falls to your specified level.
Logic: "I want to buy, but only if price drops to a better (lower) level."
Example:
Current EUR/USD: 1.1050
You set Buy Limit at: 1.1020
Order triggers when: Price falls to 1.1020
Sell Limit Order
A sell limit order is placed ABOVE the current market price. It executes when price rises to your specified level.
Logic: "I want to sell, but only if price rises to a better (higher) level."
Example:
Current EUR/USD: 1.1050
You set Sell Limit at: 1.1080
Order triggers when: Price rises to 1.1080
Advantages of Limit Orders
- Better entry prices: You specify the exact price you want
- Works while you sleep: Enters trades automatically at your levels
- No slippage (usually): Fill at your specified price or better
- Great for support/resistance trading: Enter at bounces from key levels
Disadvantages of Limit Orders
- No guarantee of fill: Price may never reach your level
- Potential to miss moves: Market may reverse before reaching your limit
- Requires precise level selection: Too tight and you miss entries; too loose and you're not getting a good price
When to Use Limit Orders
- Buying at support zones
- Selling at resistance zones
- Entering on pullbacks in trending markets
- When you want a specific price and are willing to miss the trade otherwise
Stop Orders
Buy Stop Order
A buy stop order is placed ABOVE the current market price. It executes when price rises to your specified level.
Logic: "I want to buy if price breaks out above this level, confirming upward momentum."
Example:
Current EUR/USD: 1.1050
You set Buy Stop at: 1.1080
Order triggers when: Price rises to 1.1080
Sell Stop Order
A sell stop order is placed BELOW the current market price. It executes when price falls to your specified level.
Logic: "I want to sell if price breaks down below this level, confirming downward momentum."
Example:
Current EUR/USD: 1.1050
You set Sell Stop at: 1.1020
Order triggers when: Price falls to 1.1020
Advantages of Stop Orders
- Catches breakouts: Automatically enters when momentum is confirmed
- Trade without watching: Breakout entries while you're away
- Works for entry AND exit: Stop losses use the same logic
Disadvantages of Stop Orders
- Potential for slippage: Fast markets may fill you at worse prices
- False breakouts: May enter just as the breakout fails
- After-the-fact entry: You enter after the initial move, not before
When to Use Stop Orders
- Breakout trading strategies
- Trend continuation setups
- When you only want to enter if price confirms a direction
- Stop losses (see below)
Stop Loss and Take Profit
Stop Loss Order
A stop loss closes your position at a specified loss level to limit downside risk.
For a Buy Position: Stop loss is a sell stop placed BELOW your entry price
For a Sell Position: Stop loss is a buy stop placed ABOVE your entry price
Example:
Bought EUR/USD at: 1.1050
Stop Loss at: 1.1020 (30 pips risk)
If price drops to 1.1020, your position automatically closes
Take Profit Order
A take profit closes your position at a specified profit level to lock in gains.
For a Buy Position: Take profit is a sell limit placed ABOVE your entry price
For a Sell Position: Take profit is a buy limit placed BELOW your entry price
Example:
Bought EUR/USD at: 1.1050
Take Profit at: 1.1110 (60 pips profit)
If price rises to 1.1110, your position automatically closes
Partial Close Orders
Some platforms allow you to close only part of your position:
Original position: 1.0 lot bought at 1.1050
Take Profit 1: Close 0.5 lots at 1.1080 (30 pips, secure partial profit)
Take Profit 2: Close remaining 0.5 lots at 1.1120 (70 pips, let profits run)
This allows you to lock in some profit while keeping exposure for potential larger moves.
Advanced Order Types
Trailing Stop
A trailing stop moves with price to lock in profits while allowing the trade to run.
How It Works:
Buy EUR/USD at: 1.1050
Set Trailing Stop: 30 pips
Initial Stop: 1.1020
Price rises to 1.1080:
New Stop: 1.1050 (breakeven)
Price rises to 1.1120:
New Stop: 1.1090 (locked 40 pips)
Price reverses to 1.1090:
Position closes with 40 pip profit
Advantages:
- Locks in profits as trade moves favorably
- No manual adjustment required
- Catches extended moves you might exit too early
Disadvantages:
- Can exit too early in volatile, whipsawing markets
- Fixed pip trailing may not suit all market conditions
OCO (One-Cancels-Other)
OCO links two orders together. When one executes, the other automatically cancels.
Common Use: Bracketing a Range
EUR/USD trading between 1.1020-1.1080
Set Buy Stop at: 1.1085 (break above range)
Set Sell Stop at: 1.1015 (break below range)
OCO Link: Yes
If price breaks to 1.1085:
- Buy Stop executes
- Sell Stop automatically cancels
Other Uses:
- Different entry scenarios (buy here OR there)
- Stop loss linked to take profit on existing position
GTC (Good Till Cancelled)
Orders remain active until you manually cancel them or they execute. This is the default on most platforms.
Contrast with:
- Day Orders: Cancel at end of trading day
- GTD (Good Till Date): Cancel on a specified date
Limit vs. Stop: Quick Reference
| Scenario | Order Type | Price Level |
|---|---|---|
| Buy at lower price | Buy Limit | Below current |
| Buy on upward breakout | Buy Stop | Above current |
| Sell at higher price | Sell Limit | Above current |
| Sell on downward breakout | Sell Stop | Below current |
| Protect long position | Stop Loss (Sell Stop) | Below entry |
| Protect short position | Stop Loss (Buy Stop) | Above entry |
| Take profit on long | Take Profit (Sell Limit) | Above entry |
| Take profit on short | Take Profit (Buy Limit) | Below entry |
Order Execution Considerations
Slippage
Slippage occurs when your order fills at a different price than requested.
Causes:
- Fast-moving markets
- Low liquidity
- Large order sizes
- Market gaps
Mitigation:
- Trade during high liquidity hours
- Avoid trading during major news
- Use limit orders when possible
- Accept that some slippage is normal
Spread Impact
The spread affects your effective entry price:
Buying: You pay the ask price (higher) Selling: You receive the bid price (lower)
Always account for the spread when setting stop losses and take profits.
Partial Fills
Large orders may not fill entirely at one price. Your order might be split across multiple price levels.
Example:
Order: Buy 10 lots at market
Fill: 7 lots at 1.1050, 3 lots at 1.1051
Average Entry: 1.10503
Gap Risk
Markets can gap, especially over weekends:
Friday close: 1.1050
Your Stop Loss: 1.1030
Monday open: 1.0990
Result: Filled at 1.0990 (40 pip slippage)
Stop losses don't guarantee a specific exit price—only that an exit will occur.
Platform-Specific Features
MetaTrader 5 Order Features
- All standard order types
- Trailing stops (pip-based or points)
- Partial close capability
- Multiple take profit levels via pending orders
Entering Orders in MT5
Market Order:
- Click New Order
- Select symbol
- Enter volume
- Choose Instant Execution
- Click Buy or Sell
Pending Order:
- Click New Order
- Select symbol
- Change Type to Pending Order
- Select order type (Buy Limit, Sell Stop, etc.)
- Set price, volume, SL, TP
- Click Place
Best Practices
Always Use Stop Losses
Every trade should have a defined stop loss. Never hope a losing trade will reverse.
Size Orders Appropriately
Calculate position size based on stop loss distance and acceptable risk percentage.
Don't Move Stops Backward
Moving your stop further away to avoid being stopped is a recipe for disaster.
Review Open Orders Regularly
Pending orders can become outdated. Review and cancel obsolete orders.
Test Order Types on Demo
Before risking real money, practice all order types on a demo account to understand how they execute.
Conclusion
Order types are your tools for interacting with the market. Understanding when and how to use each type gives you control over your entries, exits, and risk management.
Key takeaways:
- Market orders for immediate execution
- Limit orders for better prices at key levels
- Stop orders for breakouts and protection
- Always define your stop loss and take profit
- Advanced orders like trailing stops and OCO add sophistication
Master these order types, and you'll execute your trading strategy with precision and confidence.
The difference between amateur and professional traders often comes down to execution. Use the right order for each situation.