This article looks at the difference between the stop and if touched orders.
Foreign exchange trades are comprised of a series of independent orders used in various combinations. The majority of forex markets will allow traders to choose the appropriate orders and order combinations depending on the trade being executed. To be a successful trader you must have a working knowledge of the different types of orders and how to place them.
Placing the forex orders
Traders will generally need to place an order in advance as exchanges process positions in the order that they are placed. Therefore, by placing an order in advance you can be sure to have your trade executed when the market currency pair is at a beneficial rate.
There are various types of orders available that can be used to place a position in advance. It is important to know which to use as using the wrong order can be detrimental to your trading. The most well known types of orders are the limit orders, the stop market orders/stop orders, and the stop limit orders. One should also consider the market if touched and the limit if touched orders, as the limits and stops are not always suitable in certain trades.
The stop market and stop limit orders
The stop limit and stop market orders are generally used when a trader wishes to execute a trade at a specific price and the forex market is not currently trading at that price. For example, the forex market price is 55.05; a trader may place a stop limit order to buy at 56.00. If the market price trades at or above 56.00, the order will be executed and filled.
These orders are highly recommended when executing breakout trades. This is where a trader wants their order executed if the market moves past a particular price.
One difficulty associated with the stop market and stop limit orders is that they are only effective when the market price is on the correct side of the order, which is generally below the market price. If the market is trading above the price then neither the stop market or stop limit will be beneficial.
The market if touched and limit if touched orders
The market if touched and limit if touched orders are similar to the stop market and stop limit orders, however they are used when a market is trading on the opposite of the specified order price. For example, if the current market price is 63.25, the trader may set a stop limit order at 63.00. If the market trades at or below the limit order price, the order will be triggered and filled.
The market if touched and limit if touched work in the opposite direction. For example, if the trade is to be purchased at 75.00 and the market is trading at below this price, then a stop order would be suitable. However, if the market is trading above the 75.00 price an if touched order would be the best option.
The type of order is best used as a bounce trade. This means that the trader wants their trade executed, but only if the market trades back to a certain price.