CFD & Forex Order

Definition Of A CFD & Forex Order

An order corresponds to the manner in which you enter and exit a transaction on the forex. They are indispensable for systematically testing our various buy and sell positions and for choosing automatically the moment in which to open or close them.

Generally, we make a distinction between a limit order and a stop order. In this article, we will discuss the more common orders and the more specific orders.

Stop, Limit and OCO (One Cancels the Other) Orders

Stop and Limit orders can be necessary from time to time to open or close a specific position.

Stop Orders

Stop Orders, also known as “stop loss orders”, consist of an order to purchase or sell when the market reaches a certain predetermined level. A stop order’s main function, therefore, is to determine a limit beyond which the market is no longer favourable. This way, you can limit your losses.

Let’s look at an example:

If we purchase 1000 EUR/USD at 1.5180 and we have placed a stop at 1.5100, the position will automatically close if it arrives at this limit. This avoids the possibility of a larger loss.

Limit Orders

Limit orders, on the other hand, are set up as an order to buy or sell automatically as soon as an activation threshold is reached or exceeded. Therefore, they are not used to limit losses, but rather to maximise profits.

Let’s look at an example:

If the cross EUR/USD is at 1.2751 and the euro is expected to fall to 1.2532 followed by an increase, we place the limit order at this level to purchase the euro as soon as that value is reached.

OCO Orders

OCO Orders, where OCO stands for One Cancels the Other, are used for setting up a position with a stop order in conjunction with a limit order. This combination ensures the safest outcome for any loss or earnings. Obviously, the execution of one of these orders automatically cancels out the other.

Let’s look at an example:

If you have a position open of 1000 EUR/USD, at a price of 1.5370, you could set the following orders:

A Stop Order to sell at 1.5450

A Limit Order to buy at 1.5200

In this specific case, the OCO Order saves us from excessive loss should the movement of the EUR/USD take it to 1.5450 and succeed in earning a profit if it goes up, as soon as it reaches 1.5200.                      

The orders we have discussed so far, are applied, as you can see, to positions that are already open. However, there are also orders that allow us to open a position.

For the best use of this type of order, it is important to determine the level above which a value will not rise, which is called the “resistance” threshold, and the level under which it will not fall, known as the “support” threshold. Each time the price reaches one of these important levels, an order is automatically executed.

Warning! This technique is not without risks. Effectively, support and resistance thresholds can change over time, even if they remain at the same level for a long period. It is therefore essential to remain vigilant.

Other Types of Orders

“If Done” Orders

An “If Done” order must be made up of a limit order combined with another type of order that starts off inactive. The principal is simple: As soon as the limit order is carried out, the associated order becomes active. The associated order in this case can be a limit order, a stop order or an OCO order. The advantage of an If Done order is being able to avoid constant monitoring of the limits.

Let’s look at an example:

If the EUR/USD has a price of 1.5270, we place a limit order to sell at the resistance threshold of 1.5400. We then associate a stop order at 1.5270. In this way as soon as the position reaches the resistance threshold, the limit order is executed and the stop order that we associated with it becomes active. An If Done order is an excellent way to gain profits without risking losses in the case of new lows in the price.

“Trailing Stop” Orders

“Trailing Stop” orders offer another good trick to avoid major losses. In effect, trailing stop orders increase in proportion to the value of the cross to which they are attached. Contrary to the last order type, this one automatically locks in the moment in which the value of the cross drops.

Let’s look at an example:

We place a trailing stop at 1.5000 on the EUR/USD cross, opened at a price of 1.5270. If the price of this cross rises to 1.5070, then our stop order will also rise to 1.5070. Vice-versa, if the price falls, our trailing stop order will remain locked on its last position. In this way, we incur less risk.

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