Advanced Orders for Beginners
In the Orders for Beginning Traders article, we examined the basic types of entry and limit orders. It is important to read that article and understand those orders before moving on to these more advanced orders.
These orders are more complex and more adaptable to a particular trade or trading style. When used correctly, they can make your trade more effective and reduce your risk exposure. However, if used incorrectly or too frequently, they can reduce your profit potential and even prevent you from entering your desired trade.
Let’s look at these trade-enhancing or trade-busting orders.
- GTC ("Good 'Til Cancelled") Order
This is a “Good ‘til Cancelled” order. A GTC order is a type of entry order that remains active until the trader decides to cancel it. The broker will not ever cancel the order so the trader is completely responsible for managing it. In short, the order will remain in the pending orders (or equivalent) folder of the trading platform until the specified parameters are met or until the order is cancelled by the trader.
This might seem quite straightforward. However, it is very common to forget that there is an order pending, particularly if you are actively trading other currencies.
Speaking from personal experience, I had forgotten about my GTC entry order. The trading scenario changed and I was no longer interested in entering that particular trade, but the trading platform remembered. I was placed into an unwanted (and ultimately, unprofitable) trade. So, traders should use GTC orders sparingly and keep a close watch on all inactive (or pending) orders.
- GFD (“Good for the Day”) Order
This type of entry order is just the opposite of the above GTC order. A GFD order remains active in the market only until the end of the trading day. Then it will automatically cancel.
A GFD order is very useful for preventing old and forgotten entry orders from collecting dust in the pending folder of your trading platform. It can cause problems when the parameters set for entry are not met during the trading day in which the GFD order was set. Then the order will automatically cancel. Many potentially profitable trades are missed by using this order.
Beginning traders can use the GFD but should set the entry parameters wide enough to ensure that the trade is entered.
- OCO ("Order Cancels Other") Order
This is the most complex of the three advanced orders. An OCO is a combination of two entry orders. Two orders with price limitations are placed. One is placed above the market price. Another is placed below the market price. (The trader believes that the currency will make a large move, but does not know in which direction this will occur.) When the breakout does occur and the currency moves, one of the orders is activated. In activating one of the orders, the other order is automatically cancelled. So, the activated order cancelled the other order.
This is a good type of strategy to use when a breakout (or large price movement) is anticipated. It covers both bases for the trader to enter the trade and make a profit regardless of the direction the currency price moves. And, unlike the GTC order, there will not be a lot of outdated, unused entry orders pending.
Still, the OCO is an advanced type of order. Its utility is very limited, but also very effective. Beginning traders can use this type of order, but resist the urge to get fancy with it. Mistakes are easily made and losses can quickly follow these mistakes.
These advanced orders can be quite useful for beginning traders. But they must be monitored. Calls and complaints to brokers about why trades were entered without permission or not entered when ordered can turn up old GTC, GFD, and OCO orders. This is a surprisingly common occurrence.
Think of what you are trying to accomplish by using these orders. Are they part of a larger trading strategy? Do you want to limit your exposure? Do you want complete control of your entry time and price?
As noted in the Orders for Beginning Traders article, remember to keep it simple.
