Nick Goold
Once you have chosen your trading strategy, the next step is deciding how to execute your plan. Financial market prices can move quickly, and it is easy to miss your entry point if you use the wrong order.
You can use three different types of orders to enter the market.
At market
The at market order is the most basic type of order used to buy or sell a currency pair at the current market price. Market orders are typically used when the speed of execution is more important than the price.
For example, if the current market is 129.01/129.02, you would buy now at 129.02
Advantages
- Do not miss a potentially profitable trade
- Do not need to wait to enter your position
Disadvantages
- A limit order could result in a better entry price
- Higher chance of making a poor trading decision
- Need to watch the market to enter a trading position
When to use
- When you have a high level of confidence in the market
- Market volatility is high, and waiting for a better price can lead to missing a profitable opportunity
- Better in trading trending markets
Limit order
An order to buy or sell a currency pair at a specific price or better. If the market price reaches the specified level, the order is executed. Limit orders are used to buy should prices fall or sell if prices rise.
For example, if the current market is 129.01/129.02, a limit order would buy should the price fall to 128.95.
Advantages
- Can enter at better prices than entering at market
- Easier to make calm trading decisions when using limit orders
- Do not need to watch the market looking for entries
Disadvantages
- Chance of missing profitable trading opportunities
- Can lead to short-term losses going against the market
When to use
- Quiet markets reward patience with better entry prices
- Better when trading range-bound markets
Stop entry
An order to buy or sell a currency pair at a specific price or better if and only if the market price reaches a predetermined level. This type of order is often used by traders who want to trend trade but want to wait until a specific price level before entering the trade.
For example, if the current market is 129.01/129.02, you would buy at the market should the price rise to 129.10
Advantages
- Successful method of following strong trends
- Do not need to watch the market looking for entries
Disadvantages
- Can lead to poor entries when the market panics
When to use
- When you believe the market could start a strong trend
When building a strategy, using the best order type can help improve your profitability immensely over the long term. Therefore, practice with the three different order types and analyze the performance to improve your trading performance.
