Order Types
Market Order, Pending Order, Stop Loss, Take Profit — every order type explained
Why Understanding Order Types Matters
Knowing how to use different order types is fundamental to executing your trading strategy correctly. Each order type serves a specific purpose, giving you precise control over when, where, and how you enter and exit the market.
Market Orders
A Market Order is the simplest type of order. It executes immediately at the current available market price.
Buy Market Order
Opens a long position (buying) at the current Ask price.
- Use when you want to enter a trade immediately
- You expect the price to go up
Sell Market Order
Opens a short position (selling) at the current Bid price.
- Use when you want to enter a trade immediately
- You expect the price to go down
Important Considerations
- Execution is immediate but the exact fill price may differ slightly from what you see (slippage)
- In fast-moving markets, slippage can be significant
- Always check the spread before using a market order, especially during news events
Example:
EUR/USD Bid: 1.0848 / Ask: 1.0850
Buy Market Order → Filled at 1.0850 (Ask)
Sell Market Order → Filled at 1.0848 (Bid)
Pending Orders
Pending orders are instructions you give to your broker to automatically execute a trade when the price reaches a specific level you have predetermined. The order "waits" in the system until your conditions are met.
Types of Pending Orders in MT5
MT5 offers six types of pending orders:
1. Buy Limit
Placed below the current price. The order triggers when the price drops down to your specified level.
Current EUR/USD: 1.0850
You set Buy Limit at: 1.0800
Logic: "I want to buy, but at a cheaper price"
Trigger: When Ask reaches 1.0800 or lower
When to use:
- You expect the price to dip to a support level before bouncing up
- You want to enter at a better price than the current market
2. Sell Limit
Placed above the current price. The order triggers when the price rises up to your specified level.
Current EUR/USD: 1.0850
You set Sell Limit at: 1.0900
Logic: "I want to sell, but at a higher price"
Trigger: When Bid reaches 1.0900 or higher
When to use:
- You expect the price to rally to a resistance level before dropping
- You want to enter a short position at a more favorable price
3. Buy Stop
Placed above the current price. The order triggers when the price rises to your specified level.
Current EUR/USD: 1.0850
You set Buy Stop at: 1.0900
Logic: "If the price breaks above this level, I want to buy"
Trigger: When Ask reaches 1.0900 or higher
When to use:
- You expect a breakout above a resistance level
- You want to join momentum once the price confirms a move higher
4. Sell Stop
Placed below the current price. The order triggers when the price drops to your specified level.
Current EUR/USD: 1.0850
You set Sell Stop at: 1.0800
Logic: "If the price breaks below this level, I want to sell"
Trigger: When Bid reaches 1.0800 or lower
When to use:
- You expect a breakdown below a support level
- You want to join the bearish momentum once the price confirms a drop
5. Buy Stop Limit (MT5 Exclusive)
A two-stage order that combines a Buy Stop and a Buy Limit:
1. When the price reaches the Stop price (above current price), a Buy Limit order is placed
2. The Buy Limit is placed at a specified Limit price (below the Stop price)
Current price: 1.0850
Stop Price: 1.0900 (trigger level)
Limit Price: 1.0880 (actual entry)
Logic: "If price rises to 1.0900, wait for a pullback to 1.0880 to buy"
When to use:
- You anticipate a breakout followed by a brief pullback before continuing higher
6. Sell Stop Limit (MT5 Exclusive)
The opposite of Buy Stop Limit:
1. When the price reaches the Stop price (below current price), a Sell Limit order is placed
2. The Sell Limit is placed at a specified Limit price (above the Stop price)
Current price: 1.0850
Stop Price: 1.0800 (trigger level)
Limit Price: 1.0820 (actual entry)
Logic: "If price drops to 1.0800, wait for a bounce to 1.0820 to sell"
Visual Summary of Pending Orders
Sell Limit ↓ (placed above current price, expecting reversal down)
Buy Stop ↑ (placed above current price, expecting breakout up)
- - - - - Current Price - - - - -
Sell Stop ↓ (placed below current price, expecting breakout down)
Buy Limit ↑ (placed below current price, expecting reversal up)Stop Loss Orders
A Stop Loss (SL) is a protective order that automatically closes your position when the price moves against you by a specified amount. It is your most important risk management tool.
How Stop Loss Works
For a Buy (Long) Position:
Entry: Buy EUR/USD at 1.0850
Stop Loss: Set at 1.0800
If price drops to 1.0800, the position automatically closes
Maximum loss = 50 pips
For a Sell (Short) Position:
Entry: Sell EUR/USD at 1.0850
Stop Loss: Set at 1.0900
If price rises to 1.0900, the position automatically closes
Maximum loss = 50 pips
Stop Loss Best Practices
1. Always use a Stop Loss - Trading without one is gambling, not trading
2. Set it before entering - Decide your maximum acceptable loss before placing the trade
3. Place it at logical levels - Behind support/resistance, below/above recent swing points
4. Never move it further away - If the market is going against you, accept the loss
5. Account for the spread - Place your SL a few pips beyond the technical level to avoid premature triggers
Trailing Stop Loss
A Trailing Stop is a dynamic Stop Loss that moves automatically in your favor as the price moves profitably.
Entry: Buy EUR/USD at 1.0850
Trailing Stop: 30 pips
Price moves to 1.0880 → SL moves to 1.0850 (breakeven)
Price moves to 1.0900 → SL moves to 1.0870
Price moves to 1.0950 → SL moves to 1.0920
Price drops to 1.0920 → Position closed at profit of 70 pips
Note: In MT5, the trailing stop only works while your platform is running. If you close MT5, the trailing stop becomes inactive (the last SL level remains as a regular SL).
Take Profit Orders
A Take Profit (TP) order automatically closes your position when the price reaches your profit target.
How Take Profit Works
For a Buy (Long) Position:
Entry: Buy EUR/USD at 1.0850
Take Profit: Set at 1.0950
If price rises to 1.0950, the position automatically closes
Profit = 100 pips
Setting Take Profit Levels
Common methods for determining TP levels:
1. Fixed pips - Always targeting the same number of pips (e.g., 50 pips)
2. Risk-Reward ratio - If your SL is 30 pips, set TP at 60 pips (2:1 ratio)
3. Technical levels - Next resistance (for buys) or support (for sells)
4. Fibonacci extensions - Using Fibonacci levels to project targets
5. Partial take profit - Closing half at TP1 and letting the rest run to TP2
Risk-Reward Ratio
The Risk-Reward Ratio (RRR) compares your potential loss (risk) to your potential gain (reward).
RRR = Stop Loss (pips) : Take Profit (pips)Examples
| SL | TP | RRR | Interpretation |
|---|---|---|---|
| 30 pips | 30 pips | 1:1 | Equal risk and reward |
| 30 pips | 60 pips | 1:2 | Reward is double the risk |
| 30 pips | 90 pips | 1:3 | Reward is triple the risk |
| 50 pips | 25 pips | 2:1 | Risk is double the reward (poor) |
Why RRR Matters
With a 1:2 risk-reward ratio, you only need to win 34% of your trades to be profitable:
10 trades with 1:2 RRR, risking $100 each:
- 3 winners x $200 = $600
- 7 losers x $100 = -$700
Net = -$100 (still losing with 30% win rate)
But with 4 winners (40% win rate):
- 4 winners x $200 = $800
- 6 losers x $100 = -$600
Net = +$200 profitRule of Thumb: Aim for a minimum 1:1.5 or 1:2 risk-reward ratio. Anything below 1:1 requires an exceptionally high win rate to be profitable long-term.
Order Execution Types
Instant Execution
Your order is executed at the price you see on screen. If the price changes before execution, you may receive a requote asking you to accept the new price.
Market Execution
Your order is executed at the best available price at the moment of processing. No requotes, but you may experience slippage (positive or negative).
Exchange Execution
Orders are sent to an external exchange for matching. Used primarily for stocks and futures rather than Forex.
Placing Orders in MT5: Step by Step
Market Order
1. Press F9 to open the New Order window
2. Select the Symbol (currency pair)
3. Set Type to "Market Execution"
4. Enter your Volume (lot size)
5. Optionally set Stop Loss and Take Profit levels
6. Click Buy or Sell
Pending Order
1. Press F9 to open the New Order window
2. Set Type to "Pending Order"
3. Choose the pending order type (Buy Limit, Sell Stop, etc.)
4. Enter the Price at which you want the order triggered
5. Set Volume, Stop Loss, and Take Profit
6. Optionally set an Expiry date/time
7. Click Place
Modifying an Existing Order
1. In the Terminal (Ctrl+T), go to the Trade tab
2. Right-click the position or pending order
3. Select Modify or Delete
4. Adjust SL, TP, or price as needed
5. Click Modify
Common Order Mistakes to Avoid
1. Trading without a Stop Loss - The single most dangerous mistake
2. Moving your Stop Loss further away - This increases your risk beyond your original plan
3. Setting stops too tight - Getting stopped out by normal market noise
4. Ignoring the spread when setting orders - Your pending order triggers based on Bid or Ask, not the mid-price
5. Forgetting to cancel pending orders - If your analysis becomes invalid, remove the pending order
6. Using market orders during news - Spreads widen dramatically and slippage increases
Key Takeaways
- Market orders execute instantly at the current price; use them when timing is critical
- Pending orders let you automate entries at predetermined price levels
- Limit orders (Buy Limit, Sell Limit) expect price to reverse at a level
- Stop orders (Buy Stop, Sell Stop) expect price to break through a level
- Stop Loss is your most essential risk management tool; always use one
- Take Profit locks in gains automatically at your target level
- Aim for a minimum 1:1.5 risk-reward ratio on every trade
- Stop Limit orders (MT5 exclusive) combine breakout confirmation with pullback entries
Next Lesson: In the next lesson, we begin our Technical Analysis journey with Japanese Candlestick Patterns - the foundation of reading price charts.