No matter whether you are a beginner to the forex market and financial markets in general, or whether you are experienced, knowing the different types of orders in the forex market are crucially important if you want to have a successful experience.
There are various types of orders in the financial markets, most of which have to do with the interactions you have with the broker. The broker is the intermediary between you and the financial market in question. For instance, in the foreign exchange market, your broker will allow you to exchange foreign currencies.
In any case, regardless of the financial market, you need to know these different orders. So, without further ado, here are the different order types in financial markets, in no particular order. No pun intended!
Starting off with market order, we have here what is known as the most significant and the most fundamental of orders. A market order is submitted by the user to the broker and it signifies a buy or sell order. According to the market order the broker is required to buy or sell the assets, for instance foreign currencies in the forex market, at a specific price.
Each order of course has its own specific features and characteristics and traders need to use them based on the specific conditions at hand. But to be more exact, a market order will notify the broker to either buy or sell your chosen currency at a specific price. The execution needs to take place immediately.
On the other hand, if there is no position available for the broker to buy or sell, the broker will open a position for the trader. The pro of a market order is the immediate execution of the order issued by the trader. The market order is specifically useful for the Forex market because prices can change quickly and the market is known to be quite volatile at times. The volatility might be due to the fact that there is a great volume of trades in this market.
So when there is this great deal of volatility, the time of the execution of orders is quite important. This is how market orders are useful especially in the forex market.
There are certain periods in the forex market when volatility gets even higher and thus opportunities are hard to come by. Or rather they are short lived. So timely execution of orders becomes even more important.
Fill or Kill Order (FOK)
Second on our list is an order known as the Fill or Kill order which is otherwise known as n FOK. A fill or kill order has certain characteristics that make it different from other orders.
First of all, the fill part. This part of the order is pretty self-explanatory. It means that the order ought to be filled by the broker in its entirety. So the order is required to be executed wholly not partially. What this means is that partial fills are not allowed. We can see with other orders that they can be filled partially and little by little when assets are available by the broker. but with the case of the fill or kill order, the order needs to be completed wholly.
So with a fill or kill order partial fills are not allowed. But there is another part, the kill part.
The second part is sort of a confirmation for the first part. The kill part means that in case the order is not filled in its entirety then it ought to be so to speak killed or canceled.
But there is a third part of the order that sets it apart even further. A fill or kill order needs to be filled immediately. That is the third and extremely important part of the order.
All FOK orders are immediate orders. It means if they cannot be filled immediately they will be killed or canceled.
So, in effect, there are two qualities that if they are not satisfied the order will be canceled, first it should be filled wholly and not partially, and second it should be filled immediately. If either of those qualities are not satisfied the order is canceled.
All or None
Next on the list we have the All or None order which is also known as the AON order.
According to the all or none order, when the trader submits this to the broker, the broker is in turn required to fill the order completely at once and then close the trade or if it is not able to do so it will cancel the trade.
There is a similarity between the all or none order and the fill or kill order. Both of them require the broker to fill the trade wholly. This means the trade must be executed as requested exactly with regard to the amount completely. It cannot be filled partially, which is something certain brokers do when they do not have available assets. For instance, stock brokers will do partial fills when they do not have enough stocks in their inventory.
So this is the similarity between all or none and fill or kill order.
But they have a big difference. As it has been just mentioned, a fill or kill order must be filled immediately. But with the all or none (AON) order the brokers must longer in order to execute the trade.
This is both an upside and downside. The upside is that with this feature, it is more possible that your order will be filled, especially compared to fill or kill orders.
But the downside is just that. AON order can take a very long time to fill, especially if the requested order has a large amount.
But the biggest advantage of the AON is that you can lock in your large order with a specific price and wait for it to be filled.
Immediate or Cancel
Next up is the immediate or cancel order. This order which is also known as the IOC order also shares certain similarities with the orders that have been mentioned earlier.
The most important feature of the immediate or cancel order is the fact that it has been filled immediately. That is the prominent feature of this order and what has given the name to it.
Other than this significant aspect of the order, an immediate or cancel order has another important feature that makes it even more unique. It doesn’t need to be filled whole and in its entirety.
What this means is that contrary to the all or none order or fill or kill order the immediate or cancel order does not have to be filled completely. It can in fact be filled partially. So partial fills are allowed for the immediate or cancel order.
This means that even if the broker does not have enough assets in its inventory to fill the order, it can fill parts of the order at least.
Compared to the two other orders mentioned above, the immediate or cancel order has the upper hand of being able to fill parts of the order. This means you will not be left with nothing.
The fact is in most cases, an all or none order or a fill or kill order is not filled. Especially because traders usually go for really high amounts with these two orders. But with the immediate or cancel you can rest assured that your order will at least be partially filled, if not all of it, immediately.
One Cancels the Other
Continuing with our list of different order types in the financial markets we have the one cancels the other order otherwise known as the OCO order.
With the one cancels the other order we have in fact two separate orders that are issued by the trader to the broker – this means a buy order and a sell order.
When the trader submits this directive to the broker, the broker will set out to fill either one of them. At such times when one of the orders is filled, the other is canceled automatically and immediately. This is why this order is known as the one cancels the other order.
This type of one cancels the other directive is not something that amateur traders can use easily. In fact, it is most useful for a more experienced hand. The reason is that it can give the trader the ability to set a target for their profit and also a stop loss for their losses.
So they can set to go long and short at the same time. And whichever way the market turns they will profit nonetheless.
Of course this means that the one cancels the other order provides traders with a great degree of control over their assets and also market movements.
But at the same time you need to know that it is a bit difficult to maneuver. As was mentioned above, because of the challenging nature of this order, it is mostly used by professional traders, who are also often day traders.
One Triggers the Other
Then we have the one that triggers the other order. This directive which is also known as OTO is a conditional directive issued by the trader to the broker.
So what this means is that traders are able to set a trigger for the trade. Once the trigger is hit the trade can take place. This is why this order is known as the one triggers the other order.
And the trigger can be various things that can activate the filling of the order, whatever itself may be. So for instance when you are trading in the foreign exchange market, you can set the price of another currency pair as the trigger for your order.
This means when the price of the other currency pair hits a certain level or falls to a certain price, your order for another currency pair will be filled.
This also means that you can use the one triggers the other order to sell forex contracts for the currency pairs at a specific price at a later date when the price is hit.
This has clear advantages. First of all, it is much easier to execute. So even less experienced traders can use this order to reap benefits. This goes against the order that was discussed before this one – i.e. one cancels the other order.
On the other hand, the one triggering the other order gives traders the ability to execute orders based on their own conditions, even though it might take some time. But this means that there is a higher degree of certainty and protection against losses.
We started off this list with a fundamental order, here we have yet another fundamental order – which is the buy limit order.
A buy limit order is a directive issued by the trader to the broker that requires the broker to execute a buy order at the requested price or even lower than the requested price.
This way the buy limit order can help traders control the amount of money that they have to allocate to the order. Because they know that the buy order will definitely not take place higher than the requested price. In fact also there is the possibility that their order will be executed at even a lower price.
Although, not everything can be perfect. On the other hand, things are all good. You are guaranteed that the order will be filled at the price you set or lower. So far so good.
However, here we get to the downside of the buy limit order.
With the buy limit order, there is no guarantee that the trade will be executed. This is because a certain price has been set and the order cannot be filled otherwise. So it is possible that the price won’t hit the requested amount or will stay above it. So if this happens, the order will get canceled.
Because of this reason, the buy limit order needs to be used carefully. If prices are likely to increase, this means you will miss your trading opportunities because your order will be canceled.
On the other hand, if you have analyzed the market carefully and know that the prices will indeed decrease, then the buy limit order can in fact be a good choice for trading. Because that way it will provide you with the benefit of only paying the requested price or lower.
Let us close things off with one of the most utterly crucial orders in the market, especially in the forex market. A stop loss order is one of the significant pillars in risk management in forex trading.
This stop loss order is a certain price that is specified by the trader at which the pair is shorted or longed in order to prevent losses.
Being one of the most important parts of risk management, a stop loss order will enable traders to have their assets automatically sold when the price of the asset hits a certain point. This is so the price doesn’t get any lower for your asset and that you will not lose any more due to price decreases.
Good till Canceled
A Good Till Canceled (GTC) order is a type of buy or sell order that traders can send to their broker. When a trader places a GTC order, the order remains open until it is completely filled or canceled by the broker.
The unique feature of a GTC order is that it operates outside the usual time frame associated with other types of orders. Unlike regular orders that may expire at the end of the trading day, a GTC order remains active beyond the current trading session and can last for an extended period.
Typically, brokers set a time limit for GTC orders, often around 90 days, after which the order will be automatically canceled if it hasn’t been filled. However, it’s important to note that different brokers may have varying time limits for GTC orders. It’s always advisable to check with your specific broker to understand their policies regarding GTC orders before placing one.