A short guide to FX Stop Order Types
Many traders use stop orders in order to reduce the need to constantly monitor trades every moment of the day.
For some traders this may help execute their strategies more automatically. For others, it is a way to help make sure that a trade sticks to some pre-decided risk-reward profile. There also many other ways traders use stop orders. The following short guide should help with basics of using stop orders, if you decide that this is the right thing for you.
A Stop order is usually used to close a position when the market is going against it with a view to prevent further losses. It may also be used to open a position when the market moves through a chosen level.
The following order durations are available:
Day Order (DO): Valid until the official close of trading on the day you place the order is (or on the subsequent business day, for orders accepted during the weekend).
Good Till Date (GTD): Valid until the official close of trading on a date of your choice.
Good Till Cancelled (GTC): Valid indefinitely unless or until specifically cancelled. Where an order is attached to an open position, it will automatically be cancelled if the position is closed.
For foreign exchange (FX), a Stop order placed to buy is treated as a Stop if Bid. A Stop order placed to sell is treated as a Stop if Offer. This arrangement is designed to protect clients from the risk that their Stop order is executed as a result of spreads widening without the market actually moving. You should note that this means a stop order will never be executed at your specified level but always at the spread away from the stop level.
A Stop order to sell will be triggered when the offer price at which the you could undertake a transaction of equivalent size reaches the specified price level. Once triggered, the order will be treated as a Market order.
A Stop order to buy will be triggered when the bid price at which the you could undertake a transaction of equivalent size reaches the specified price level. Once triggered, the order will be treated as a Market order.
A Market order is a traditional ‘at best’ instruction to trade as much of the order as possible on the best available terms in the market. A Market order will normally be filled immediately (or failing that in a relatively short time). If it can’t be filled in full immediately, Saxo will continue to work the order until the official close of the relevant market.
The trigger level for a Stop order can be specified to trail the market. In this case, when the market moves in the your favour, the trigger level for the order moves the same way. The trigger level for a trailing stop moves in steps which are defined when the order is placed.
Stop Limit Order
A Stop Limit order rests in the same way as a Stop order. However, once triggered, rather than execute at the next available price it converts to a Limit order at a pre-agreed Limit price. From that point on, the order is treated as a Limit order. This type of order gives a client some protection from a bad fill in a gapping or illiquid market. Trailing Stop Limit orders are not available.
Disclaimer; Risk-reducing Orders or Strategies
The placing of certain orders (e.g. "stop-loss" orders, where permitted under local law, or "stop-limit" orders), which are intended to limit losses to certain amounts, may not be adequate given that markets conditions make it impossible to execute such orders, e.g. due to illiquidity in the market. Strategies using combinations of positions, such as "spread" and "straddle"' positions may be as risky as taking simple "long" or "short" positions. This Disclaimer is subject to the Saxo Bank Group’s full Disclaimer available at: https://www.home.saxo/legal/disclaimer/saxo-disclaimer