Market, Limit, Stop Loss and Take Profit Orders
Understanding IFT's Market, Limit, S/L and T/P Orders
The BizFOREX IFT Platform offers a fully automated environment
where BizFOREX plays the role of market maker with no human intervention. The IFT
Platform was designed to take into account the characteristics of the Internet
and to exploit the advances in computing technology that have take place over
the last 5-10 years. As a result, and in order to simplify the trading process
for the end-user, the BizFOREX IFT Platform executes orders slightly differently
than is done traditionally and in other FX trading environments. It is
important that the users of IFT understand the differences and the "rules"
of the system in order to fully exploit the advantages of the IFT Platform.
The BizFOREX IFT Platform is a market making system that
executes orders using the most up-to-date exchange rates prevalent in the market.
It is specifically not an auctioning system or a matching engine in which a
trade is executed only if both sides of the trade can be filled at the time
of the buy/sell request. Moreover, the IFT Platform does not require a trader
to request a bid/ask quote from a pricing source and then make a buy/sell decision
based on the quote offered.
Market Orders are orders that are transacted immediately
based on current market exchange rates. On the BizFOREX IFT Platform, a trader
issues a market order based on current exchange rates as displayed on the user
interface by clicking on the submit button in the "Buy/Sell Market Order"
Exchange Rate used for execution of a market order
When a market order is submitted by a trader, then it is transacted immediately
at the BizFOREX IFT servers without further communication with the trader (assuming
various boundary conditions such as sufficient margin requirements are met).
The exchange rate used for the trade will correspond to the most current
exchange rate maintained at the BizFOREX IFT servers and not necessarily the
rate displayed in the Buy/Sell Market Order window at the time the order was
submitted. This is because the rate may have changed between the time
the order was submitted and the time the order is executed. Typically, the difference
between the rate obtained for an order and the rate displayed in the Buy/Sell
Market Order window when the order is submitted will be small (and often to
the advantage of the trader). However, in times of market volatility, the difference
can be larger --- in this case, the "lower bound" and "upper
bound" fields of the order can be used to limit the traders risks, as described
The behavior of the BizFOREX IFT Platform is thus different than more traditional
FX trading environments where the trader (i) requests a bid/ask quote from a
pricing source given a currency pair and the amount to be traded, (ii) obtains
a bid/ask quote from the pricing source, and then (iii) optionally issues a
buy or a sell order for the currency pair and amount specified. In these environments,
the buy/sell order is often declined when the market has moved since the bid/ask
rate was issued, requiring the trader to go through the process again. With
the BizFOREX IFT Platform, the order is always transacted on (assuming various
boundary conditions such as sufficient margin requirements are met), and the
same exchange rate is used, regardless of transaction size (whether $1 or $1,000,000).
Another difference between the BizFOREX IFT Platform and other, more traditional
FX trading environments is that IFT offers immediate settlement of trades.
In the traditional FX market, the notion of settlement date for a trade refers
to the date on which delivery of the trade's specified amount of the base currency
is made against receiving the specified amount of the quote currency from a
second counter party, based on the agreed upon exchange rate. Typically, the
settlement date is within two business days of the deal date (or one business
day after the deal date in the case of USD/CAD). Currency traders, however,
rarely deliver. Instead, they use what is referred to as a rollover swaps. The
rollover swap is designed to allow the changing of an old deal date to the current
date by simultaneously closing an open position for today's date and opening
the same position for the next day at a price reflecting the interest rate differential
between the two currencies. Typically, rollover swaps occur at 4pm EST.
In contrast, BizFOREX's IFT Platform offers immediate
settlement, and there is no notion of rollover swap. Instead, BizFOREX pays and
charges interest on any currency pair position on a second-by-second basis,
from the second a currency pair is bought/sold to the second it is sold/bought.
See the document on interest rates calculation
for more detail.
Limiting market order risks by specifying lower and
Due to the fact that most current rates maintained at the BizFOREX servers is applied
to submitted market orders (and not necessarily the rates visible on the user
interface), out platform allows a trader to limit his or her risks by setting
the optional lower and upper bounds fields in the Buy/Sell Market Order window.
An order will then be executed only if the exchange rate to be applied is equal
to or higher than the lower bound, if specified, and if the exchange rate to
be applied is equal to or lower than the upper bound, if specified. If the most
current exchange rate at the BizFOREX servers lies outside the interval specified
by the lower and upper bounds, then the market order will be rejected.
Market orders affect existing open positions
When a market order is executed, it will close out any counter open trade should
one exist, using a First-In-First-Out (FIFO) policy. The following three examples
Existing open trades: Trade 1: Long $10,000 USD/JPY
Market order: Sell $10,000 USD/JPY
Resulting open trades: none.
Existing open trades: Trade 1: Long $10,000 USD/JPY @ 120.00
Trade 2: Long $10,000 USD/JPY @ 121.00
Market order: Sell $15,000 USD/JPY
Resulting open trades: Long $5,000 USD/JPY @ 121.00
(corresponding to half of Trade 2)
Existing open trades: Trade 1: Long $10,000 USD/JPY
Market order: Sell $15,000 USD/JPY
Resulting open trades: Short $5,000 USD/JPY
A limit order specifies that the order should be executed
when the exchange rate of the specified currency pair crosses a specified threshold.
A limit order is maintained in the system for the duration specified, up to
The BizFOREX IFT servers continuously monitor the set of open limit orders
and the current exchange rates to determine when an order should be executed.
A limit order will be executed within seconds of when the exchange rate crosses
the target threshold. However, it is important to note that the exchange rate
used for executing the limit order is the most current exchange rate at the
time the order is executed and not necessarily the threshold specified in the
order. Thus, the rate applied for the execution of the order may be either higher
or lower than the specified threshold by a small amount because of the continuously
changing exchange rates. Again, upper and lower bounds can be set to limit the
Limiting limit order risks by specifying lower and
A trader can limit his or her risks by setting the optional lower and upper
bounds fields in the Buy/Sell Limit Order window. An order will then be executed
only (i) if the exchange rate to be applied is equal to or higher than the lower
bound (if specified) and (ii) if the exchange rate to be applied is equal to
or lower than the upper bound (if specified). Thus, for example, if the current
rate is 1.660 when a limit order for 1.640 is submitted, and the trader want
to ensure that a trade is executed with a rate equal to or lower than 1.640,
then the trader can set the upper bound to 1.640.
If, at the time a limit order is executed, the most current exchange rate at
the BizFOREX servers lies outside the interval specified by the lower and upper
bounds, then the limit order will be rejected and the limit order is erased
from the system.
Limit orders affect existing open positions
As with market orders, a limit order, when executed, will close out any counter
open trade, should one exist, using a First-In-First-Out (FIFO) policy. Hence,
if a trader is long $10,000 on USD/JPY and issues a sell limit order for $10,000
USD/JPY, then the execution of the market order will have the same effect as
closing out the $10,000 long position along with any Stop-Loss or Take-Profit
orders associated with the long position.
Stop-Loss and Take-Profit Orders
To limit the down-side risk of open positions, a trader
can issue a Stop-Loss (S/L) order for each open trade. The Stop-Loss order specifies
that the trade should be closed automatically when the currency exchange rate
for the currency pair in question crosses the specified threshold. For long
positions, the Stop-Loss threshold is always lower than the current exchange
rate; for short positions, it is always higher.
To lock-in profits, a trader can also issue a Take-Profit (T/P) order. The Take-Profit
order specifies that the trade should be closed automatically when the exchange
rate crosses the specified threshold. For long positions, the Take-Profit threshold
must be higher than the current rate, while for short positions, it must be
lower than the current rate.
S/L and T/P are similar to limit orders, except that they
always correspond to an existing open trade. If an open trade is closed,
then all corresponding S/L and T/P orders associated with the open trade are
erased. S/L and T/P orders can be specified when issuing a market or
limit order by checking and filling in the S/L and T/P fields in the Buy/Sell
Order window. S/L or T/P orders corresponding to an open trade can also be set
or modified by double clicking an open order in the "Open Trades"
table (which results in a new window popping up), and then setting the action
to "modify" in the pop-up window, followed by filling/modifying the
S/L and T/P fields.