With more than five different order types to use on a foreign exchange rate, you have plenty of decisions to make. So far you might have learned about the market, limit entry, stop entry, stop loss, trailing stop, GTC, GFD and OCO. You also have one other order that can be popular among forex brokers- OTO. OTO or one triggers the other is a type of order opposite in theory to the OCO. In OCO one order will cancel the other when filled. With OTO you have two orders. The main or parent order will be filled and then the second order is put in place.
The Foreign Exchange Rate Theory of OTO
Say you need to open a position and you decide to use a limit order. The limit order waits to hit a certain entry point and then fills. Since you do not want to leave your order filled without protection you have a second order in place like a trailing stop order. The foreign exchange rate hits the limit order rate you requested. The order is now filled. Next, the trailing stop loss order is filled to ensure your open position will close at no loss or less loss than it might without protection. This is the theory behind OTO.
You do not have to use just the trailing stop loss order for the second OTO. You can actually make it a taking profit order instead. Taking profit orders have yet to be discussed in this series of market orders.
Taking profit orders allow you to remove profit from your current position. You can remove partial profit or remove the entire profit. Say you decided to buy in at 1.1000 and you have an exit point of 1.2000 on a currency pair. Using OTO you set a taking profit order at 1.1800 because all forex signals say the foreign exchange rate will definitely hit 1.2000 if not go higher. When the rate of 1.1800 is reached the second order is filled.
This order takes out the profit you specified. We will say you had 200,000 units or 2 contracts in, so you decided to take profit for 1 contract at 1.1800. You get an alert to the sale so you log in and wait for the rate to hit 1.2000 and then you sell the remaining contract. You obtained profit at 1.1800 and then profit at 1.200. You might have just as easily had to sell the remaining contract at 1.1700 after taking profit on half the contract. In either case you had your profit protected.
Concluding Foreign Exchange Rate Order Talks
Any beginning trader is bound to feel a little apprehensive about these different orders. You probably have an idea of the basic orders, especially if you used the stock market for your retirement plans prior to learning about the foreign exchange rate profit to be made. It is still a good idea during your training for forex to practise these various orders. You definitely want to practise when you deal in some of the weirder or less basic orders to ensure you have it right.