Trading in the forex market bears no resemblance to the trading schemes of the stock markets. The dissimilarities are so huge that even a veteran of stock trades will feel like a novice while conducting a currency deal with his broker. One of the major differentiating factors lays in forex order types. Listed below are the four major varieties.
Forex Order: Market Order
This is the simplest forex order type. It involves conducting buy/sell orders at the current market prices. These orders are used to enter or exit trades. The forex market fluctuates constantly. This often causes the market order to be placed at a price that has moved away from its bidding price. This difference between prices bid in the market order and the actual price of transaction is known as slippage. This slippage can often cause a gain or loss of several pips.
Forex Order: Limit Order
It is a buy/sell forex order placed under certain limits. They are used to buy currencies below the actual market price or to sell them above their actual listing. These orders work according to the market movements. Buying is carried out when the market falls to the required limit and selling is done when the market rises to the desired limit. No slippage occurs in this forex order format.
Forex Order: Stop Order
This forex order format is used to buy above or sell below the market rates. This is the preferred choice for the traders who believe in the use of stop-loss for limiting losses. If the currency falls below a certain level, the trade is automatically closed and further losses are prevented.
Forex Order: One Cancels the Other (OCO)
These forex orders are used when both the limit order and the stop loss order are used together. If any one of the order condition is met, the other one is immediately negated. This way, the need for constant monitoring of trade is removed. If the market falls, then the stop loss order is executed, while if the selling limit is reached, the currency is sold to gain profit.
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