Forex basics · Lesson 4 of 4
Order types and what happens when you trade
5 min read
Draft lesson — under editorial review
Clicking "buy" feels simple, but behind the scenes an order type is chosen, a price is matched and costs are applied. Knowing how each order behaves helps you avoid surprises in fast markets.
Market orders
A market order asks to buy or sell immediately at the best price available. A buy fills at the ask and a sell fills at the bid.
The advantage is speed: you are almost certain to get in. The drawback is that you do not control the exact price. In a fast market the fill can differ from the price you saw on screen.
Pending orders: limit and stop
A pending order waits until the price reaches a level you choose. There are two families, and the difference is whether you want a better price or confirmation of movement.
| Order | Placed | Logic |
|---|---|---|
| Buy limit | Below the current price | Buy if the price dips to a cheaper level |
| Sell limit | Above the current price | Sell if the price rises to a higher level |
| Buy stop | Above the current price | Buy only if the price rises through a level |
| Sell stop | Below the current price | Sell only if the price falls through a level |
A simple memory aid: limit orders ask for a better price than now; stop orders accept a worse price in exchange for confirmation that the market is moving your way.
A limit order, if filled, fills at your price or better, but it may never fill. A stop order becomes a market order once triggered, so it can fill at a worse price.
Stop-loss and take-profit
These are orders attached to an open trade to close it automatically.
- A stop-loss closes the trade if the price moves against you by a set amount. It is how you cap the loss on a single trade.
- A take-profit closes the trade if the price reaches your target.
Remember that a long (buy) position closes by selling, so its stop-loss and take-profit are triggered by the bid. A short position closes by buying, so its orders are triggered by the ask. So a short trade's stop can trigger when a bid-only chart seems not to have reached it, because the ask did.
Worked example: a planned trade
You buy 0.10 lots of EUR/USD at an ask of 1.1002 (example prices). At 0.10 lots, each pip is worth 1 USD.
- Stop-loss at 1.0972: distance 1.1002 − 1.0972 = 0.0030 = 30 pips. Planned risk: 30 × 1 USD = 30 USD.
- Take-profit at 1.1062: distance 1.1062 − 1.1002 = 0.0060 = 60 pips. Planned reward: 60 × 1 USD = 60 USD.
The reward is twice the risk, often written as a 2:1 reward-to-risk ratio. That ratio says nothing about how likely the target is; it only describes the trade's shape.
Slippage and gaps
Slippage is the difference between the price you expected and the price you got. It happens when the market moves between your order being sent and being filled, most often around news releases or in thin markets.
Continuing the example: a surprise data release sends EUR/USD lower. Your stop at 1.0972 triggers, but the next available bid is 1.0965.
- Actual loss: 1.1002 − 1.0965 = 0.0037 = 37 pips
- In money: 37 × 1 USD = 37 USD, not the 30 USD you planned
A gap is a bigger version of the same thing: the price jumps from one level to another with no trading in between, typically over a weekend. A stop sitting inside the gap fills at the first available price, which can be far beyond your level. Slippage can occasionally work in your favour, but plan for the unfavourable case. Some brokers offer stop-loss orders protected against slippage for an extra fee; read the terms carefully.
The role of the broker
When you place an order with a retail forex broker, you are usually trading a CFD or rolling spot contract with the broker, not exchanging currency on an exchange. Brokers broadly work in one of two ways, and many combine both:
- Dealing desk (market maker): the broker takes the other side of your trade itself and manages its overall exposure.
- Agency or straight-through processing: the broker passes your order to liquidity providers such as banks and earns from a mark-up on the spread or a commission.
Either way, your costs come from three places:
- the spread;
- any commission per lot;
- swap or overnight financing, a daily charge or credit for holding positions past the broker's rollover time, based on the interest-rate difference between the two currencies.
Before you trade live, read your broker's order execution policy and cost disclosures, and practise on a demo account until placing and managing orders feels routine.
Key takeaways
- Market orders fill immediately at the ask (buys) or bid (sells), but the exact price can differ from the screen.
- Limit orders seek a better price and may not fill; stop orders wait for movement and fill as market orders once triggered.
- A stop-loss caps planned risk, but slippage and gaps can make the actual loss larger.
- Your trading costs are the spread, any commission and overnight swap; check how your broker executes orders.
Educational content only — not financial advice. Trading leveraged products such as forex and CFDs carries a high risk of losing money.