Lesson 5 Orders Execution and Trading Costs

Choose an order type for a stated purpose, explain bid and ask execution, and calculate trading costs without counting them twice.

Buying and selling use different prices

Suppose EUR/USD is quoted at 1.1000 bid and 1.1002 ask. Buying 10,000 EUR opens at the ask, 1.1002. Immediately closing by selling at the unchanged bid, 1.1000, gives 10,000 × (1.1000 − 1.1002) = −2 USD. A short opens by selling at the bid and closes by buying at the ask. Most charts show one price series, which may be bid, ask, or midpoint. A visible candle may therefore differ from the price that triggers or fills an order. Find the provider’s stop trigger rules and enable the other price line when available.

Common order types

Order: Market; Intended purpose: Request execution at available prices; Limitation: The final price can differ from the displayed price
Order: Limit; Intended purpose: Buy at a maximum price or sell at a minimum price; Limitation: The order may remain unfilled
Order: Stop entry; Intended purpose: Activate an entry after a trigger is reached; Limitation: Trigger and fill can differ
Order: Stop loss; Intended purpose: Request an exit when a loss threshold is triggered; Limitation: An ordinary stop does not guarantee the exit price
Order: Take profit; Intended purpose: Request an exit at a favourable level, commonly using a limit condition; Limitation: Execution depends on the order’s terms and available market
Order: Stop limit; Intended purpose: Activate a limit order after a stop trigger; Limitation: A price gap can leave the position open

For a pending retracement order, a buy limit is usually below the current ask and a sell limit above the current bid. A buy stop is usually above the ask and a sell stop below the bid. A marketable limit can execute immediately; understand the actual ticket rather than relying on these usual placements. Orders have venue and provider specific rules. CME’s order type lesson (https://www.cmegroup.com/education/courses/futures-trading-mechanics-and-regulation/futures-order-types) illustrates why limits control acceptable prices while stop and market execution require attention to their terms; retail forex specifications must be checked separately.

Slippage and gaps

Slippage is the difference between a reference or requested price and the actual fill. It can be favourable or adverse. A gap occurs when the next available price skips over intermediate prices. News, thin liquidity, and market reopening can cause execution beyond a stop level. An order acknowledgement is not proof that the position has filled or that its protective orders are active. Read the order status, filled quantity, average fill, and attached stop and target after submission. Confirm cancellation too; a pending order can otherwise trigger later.

Build the full cost picture

Spread, commissions, overnight financing, and currency conversion charges can affect the result. Financing can be a charge or credit under the provider’s terms and may cover multiple settlement days at some rollovers. “Commission free” does not mean cost free. Investor.gov discussion of forex costs (https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/foreign); OANDA example of provider financing rules (https://help.oanda.com/us/en/faqs/financing-costs-us.htm). Worked example: Buy 10,000 EUR at an actual fill of 1.1002 and close at an actual fill of 1.1010. Trading profit is 8 USD. Assume a separate round trip commission of 0.70 USD and no financing or conversion charge. Net profit is 7.30 USD. The spread and execution slippage already affect these actual fills. Do not subtract them again. When estimating from midpoint chart prices instead, explicitly model bid and ask spreads, slippage, and separate charges.

Practice

In demo or on paper, prepare a market order and a pending limit order. Describe why you selected each one. Record a hypothetical bid and ask, units, stop trigger, target, expiry, and estimated costs. Cancel any unused pending order and verify its final status.

Check your understanding

After the four lessons in this module, complete Module 2 knowledge check from the course overview. It contains the three questions from each lesson with feedback after submission. Keep written calculations in your workbook.

Glossary

Ask: Price at which the customer can buy the pair
Bid: Price at which the customer can sell the pair
Commission: A separate trading charge under the provider’s terms
Financing: Charge or credit for holding a position under the contract’s terms
Gap: A jump between available prices that skips intermediate prices
Limit order: An order defining the highest acceptable buy or lowest acceptable sell price
Liquidity: Ability to trade at available prices and size
Short: Exposure that benefits from a lower pair price before costs
Slippage: Difference between a reference price and the actual execution fill
Spread: Ask minus bid
Stop loss: A conditional exit instruction whose ordinary form does not guarantee its fill price
Take profit: An instruction seeking an exit at a favourable level under its terms