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Level 1 - Book 1 - Chapter 8

Types of Orders

Understanding these order types is essential before learning automated trading

Estimated Reading Time: 12 - 15 Minutes

Introduction

Knowing when to buy or sell is only part of successful trading.

You also need to know how to enter the market.

Forex brokers provide several order types that allow traders to enter or exit trades automatically at predefined prices.

Professional traders rarely sit in front of the computer waiting for the perfect moment. Instead, they use pending orders, stop losses, and take profits to execute their trading plans automatically.

Understanding these order types is essential before learning automated trading.

Market Order

A Market Order is an instruction to buy or sell immediately at the best available market price.

It is the simplest and most commonly used order type.

Example

EUR/USD

Current Price

1.1850

You believe the Euro will rise.

You click Buy.

Your broker executes the trade immediately at the current Ask price.A

Advantages

✔ Instant execution

✔ Simple to use

✔ Ideal for active trading

Disadvantages

✖ Price may differ slightly during high volatility (slippage)

Pending Orders

A Pending Order tells your broker to wait until the market reaches a specific price before opening the trade.

This allows traders to plan trades in advance without constantly watching the market.

There are four main pending orders.

Buy Limit

A Buy Limit order is placed below the current market price.

You expect the price to fall first and then rise.

Example

Current EUR/USD

1.1850

Buy Limit

1.1800

When the market falls to 1.1800, your Buy trade opens automatically.

Sell Limit

A Sell Limit order is placed above the current market price.

You expect the price to rise first before falling.

Example

Current EUR/USD

1.1850

Sell Limit

1.1900

When the market reaches 1.1900, your Sell trade opens automatically.

Buy Stop

A Buy Stop order is placed above the current market price.

It is commonly used for breakout strategies.

Example

Current Price

1.1850

Buy Stop

1.1880

If price breaks above 1.1880, the Buy order is activated automatically.

Sell Stop

A Sell Stop order is placed below the current market price.

It is also commonly used for breakout trading.

Example

Current Price

1.1850

Sell Stop

1.1820

If price falls below 1.1820, the Sell order opens automatically.

Stop Loss (SL)

A Stop Loss automatically closes your trade if the market moves against you.

Its purpose is to limit potential losses.

Example

Buy EUR/USD

Entry

1.1850

Stop Loss

1.1820

Maximum Risk

30 pips

Without a Stop Loss, losses could continue increasing if the market moves sharply against your position.

Take Profit (TP)

A Take Profit automatically closes your trade when your target profit is reached.

Example

Buy EUR/USD

Entry

1.1850

Take Profit

1.1910

Target Profit

60 pips

Using a Take Profit helps traders follow their trading plan instead of making emotional decisions.

Trailing Stop

A Trailing Stop automatically moves your Stop Loss as the trade becomes profitable.

This helps protect profits while allowing the trade to continue if the trend remains strong.

Example

You Buy EUR/USD

Entry

1.1850

Trailing Stop

30 pips

As the price rises, the Stop Loss moves upward automatically, locking in profits while giving the trade room to continue.

Which Order Type Should You Use?

Order Type	Best Used For
Market Order	Immediate trade execution
Buy Limit	Buying after a pullback
Sell Limit	Selling after a rally
Buy Stop	Buying a bullish breakout
Sell Stop	Selling a bearish breakout
Stop Loss	Limiting risk
Take Profit	Locking in profits
Trailing Stop	Protecting profits during trends

Real Trading Example

Suppose EUR/USD is trading at 1.1850.

A trader expects:

Price may pull back to 1.1820 before continuing higher.

Instead of watching the chart all day, they place:

Buy Limit: 1.1820
Stop Loss: 1.1790
Take Profit: 1.1880

If the market reaches 1.1820, the order is opened automatically according to the plan.

Common Beginner Mistakes

❌ Entering trades without a Stop Loss

❌ Placing pending orders at incorrect price levels

❌ Moving Stop Loss further away after entering a trade

❌ Removing the Take Profit because of greed

❌ Using Market Orders when a Pending Order would provide a better entry

Key Takeaways

✔ Market Orders execute immediately.

✔ Pending Orders execute only when price reaches a specified level.

✔ Buy Limit and Sell Limit are used for pullback entries.

✔ Buy Stop and Sell Stop are used for breakout entries.

✔ Stop Loss protects your trading capital.

✔ Take Profit locks in gains automatically.

✔ Trailing Stops help protect profits during trending markets.

Frequently Asked Questions

What is the safest order type for beginners?

There is no single safest order type. However, every trade should include a Stop Loss to manage risk effectively.

When should I use a Buy Limit?

Use a Buy Limit when you expect the market to decline to a support area before continuing upward.

When should I use a Buy Stop?

Use a Buy Stop when you expect the market to continue rising after breaking above a resistance level.

What happens if my Stop Loss is triggered?

Your broker automatically closes the trade to limit further losses.

Can I change my Stop Loss or Take Profit after opening a trade?

Yes. Most trading platforms allow you to modify Stop Loss and Take Profit levels while the trade is still open.

Continue Your Journey

Other Learning Lints:

Automation Insight

Order types are the foundation of every automated trading system. An Expert Advisor (EA) doesn’t click buttons—it sends precise instructions to the broker. Whether entering immediately with a Market Order or waiting with a Pending Order, the EA follows predefined rules without hesitation or emotion.