In this part of our training, we will learn what types of orders are used in forex trading and how to use them correctly according to trading strategies.

Before explaining the characteristics of each order type, let’s emphasize two important points:

First, all order types mentioned in this training can be used both to open and to close positions.
Secondly, since the broker acts as the market maker and investors as price takers, the bid and ask prices displayed on trading platforms represent the prices at which the broker is willing to buy or sell.
Therefore, when an investor wants to buy, the broker’s ask price applies; when an investor wants to sell, the broker’s bid price applies.

1. Market Orders (Active Orders)

Let’s start with active (market) orders, which are used very frequently in forex markets.
Since forex is a fast-moving and highly liquid market, investors often prefer market orders to ensure immediate execution.

A buy market order executes a purchase at the lowest available ask price at the time the order is placed.
A sell market order, on the other hand, executes a sale at the highest available bid price.

The most important feature of a market order is that execution is guaranteed.
However, the exact price at which the order will be filled is not guaranteed, as the order is sent with only the amount and direction (buy/sell) specified, not a price.

Because of this, sudden price movements that occur the moment a market order is sent may cause the transaction to be executed at a better or worse price than expected.
Therefore, while market orders offer the advantage of immediate execution, they can also lead to unfavorable outcomes depending on market volatility.

Example:
If the EUR/USD pair is quoted at 1.3250, and within seconds the price rises to 1.3290, a trader placing a buy order may end up purchasing at 1.3290 instead of 1.3250.
Similarly, if EUR/USD is trading at 1.3250 and drops to 1.3210 during a sell order, the trade may execute at 1.3210 instead of 1.3250.

2. Limit Orders (Passive Orders)

Now, let’s move on to limit orders, also known as passive orders.
A limit order is an order to buy or sell at a specific price determined by the investor.

When a limit order is placed, the order includes the direction (buy/sell), the trade size, and the desired price.
A buy limit order is triggered when the broker’s ask price matches the limit price.
A sell limit order is triggered when the broker’s bid price matches the limit price.

This means that unless the prices match, the order remains pending and no transaction occurs.
Buy limit orders are typically set below the current market price, while sell limit orders are placed above the current market price.

One last point to remember: limit orders remain active until they are canceled.

3. Stop Orders

Another widely used order type in forex is the stop order.
Contrary to popular belief, stop orders can be used both to open and to close positions.
Many investors think stop orders are only used to close existing positions — however, this is incorrect.

A stop order is triggered when the broker’s bid or ask price reaches a specified level, automatically converting it into a market order.
This guarantees execution, but not the execution price, as slippage (price deviation) can occur during rapid market movements.

• A buy stop order is triggered when the broker’s ask price reaches the stop level.
• A sell stop order is triggered when the broker’s bid price reaches the stop level.

Example 1:
If EUR/USD is quoted at 1.3050 / 1.3052 and the investor believes a rise above 1.3080 will accelerate the uptrend, they can place a buy stop order at 1.3080.
Once the broker’s ask price reaches 1.3080, the stop order converts into a market order, executing the purchase at the best available price.
However, due to slippage, the actual execution may occur above 1.3080.

Example 2:
If EUR/USD is quoted at 1.3050 / 1.3052, and the investor believes a fall below 1.3010 will trigger further decline, they can place a sell stop order at 1.3010.
When the broker’s bid price touches 1.3010, the stop order becomes an active sell market order.
Again, while execution is certain, the exact stop price is not guaranteed due to potential price deviation.

Finally, remember that buy stop orders are placed above current market levels, while sell stop orders are placed below them.

For example, if the broker’s euro-dollar pair quotation is 1.350-1.352 and in case it falls to 1.310, an investor who thinks that the decline will accelerate may enter a sell stop order at the level of 1.3010. In this case, when the broker’s bid price reaches the level of 1.3010 once, the sell stop order turns into an active sell order. That is, the fact that the level of 1.3010 is seen once in the broker’s bid quotation triggers the conversion of the sell stop order into an active sell. In this case, although it is certain that the transaction will take place at some price due to the price slippage risk, there is no guarantee that it will be executed exactly at 1.3010.

The last thing that I find useful to mention about stop orders is that while buy stop orders are placed above the market quotations, sell stop orders are placed at levels below the market quotations.

Now I would like to touch upon stop limit orders. Stop limit orders are similar to stop orders. Stop limit orders, like all other orders, are used either to open a new position or to close an existing one. A stop limit order triggers the conversion into a passive sell or passive buy order at the specified price when the broker’s bid or ask price reaches a certain level. To elaborate a little more, the broker’s ask price triggers the buy stop. The bid price triggers the sell stop. While talking about what stop orders are, we mentioned that when the broker’s bid or ask price matches the specified stop level once, the order turns into an active order. In stop limit orders, when the broker’s bid or ask price matches the specified stop level once, this order turns into a passive order working at the stop level and allowing buying or selling only at a specific price. Therefore, stop limit orders do not guarantee the execution of the transaction, but if the transaction takes place, it is executed at the intended price without any price slippage risk. Now let’s illustrate this.

For example, when the broker’s euro-dollar pair quotation is 1.3050-1.3052, if the broker’s bid quotation falls to 1.3010 and the investor, who thinks that the decline will accelerate further, wants the sale to occur only at the level of 1.3010, the investor can place a stop limit order at the level of 1.3010. In this case, if the broker’s bid price reaches the level of 1.3010 once, the stop limit order turns into a passive sell order aiming to sell at 1.3010. The transaction can take place only at this price.

Another point to know about stop limit orders is that since stop limit orders turn into passive orders, the execution of the transaction is not guaranteed. Based on the example I mentioned a little earlier, if the market decline is very fast and the price drops rapidly without allowing a sale at the level of 1.3010, the passive sell order at the level of 1.3010 will remain working until the transaction occurs. The last thing worth mentioning about stop orders is that, just like in stop orders, while buy stop limit orders are placed at levels above the market quotations, sell stop limit orders are placed at levels below the market quotations. As we approach the end of our presentation on orders, it is important to note that what matters is not what the order types are, but how they are used. Most of the time, when amateur investors take a position, they want to take profit when their position reaches a certain profit, or close their position at a loss when it reaches a certain loss. While doing this, instead of waiting in front of the screen, they send their orders to trading platforms by using combined order templates. When you take a position in QNB Invest, you can place an order in advance for your position to close either with profit or with loss. These types of orders are known as orders where one cancels the other. To explain this with an example,

For example, an investor who bought the Euro-Dollar pair at the level of 1.3020 can give a sell order at 1.3050 and at the same time activate a sell stop at 1.2950. In this case, if any of the working orders are executed, the other working order associated with it is automatically canceled. In this way, after the opened position is closed, the other order that was working remains no longer active. In this part of our training, we have provided information about how the orders used by forex investors work and how we can use these orders correctly.