Market Orders, Stop Loss & Limit Orders
What are :
market orders
Market orders allow you to target specific exchange rates which are not currently available, making them the perfect choice if you are not in a rush to make a transfer. A market order is available as:
- A limit order: where you can nominate a target exchange rate
- A stop loss order: where you nominate a minimum exchange rate
For limit orders, nominating a target exchange rate means that if your target rate is met in future, you will be able to complete a transfer at a positive exchange rate compared to what current market rate allows for.
To minimise the risk when using market orders, foreign exchange specialists like St. George Foreign Exchange use different types of market orders to target exchange rates and secure the best deals.
Market Orders: Target an Exchange Rate
Market orders in the form of limit orders and stop-loss orders allow you to target a maximum and minimum exchange rate. If either of these two is reached in a set period of time, your money is automatically exchanged. This allows you to benefit from a higher exchange rate if it rises, but prevents you from losing significantly more money if the market were to take a downturn.
Advantages and Disadvantages of:
Market Orders
Speak to a specialist at St. George Foreign Exchange to discuss the advantages and drawbacks of Market Orders.
What Are The Advantages Of Market Orders?
By setting a Market Order it is possible to secure a target exchange rate in the future, which allows for better budgeting. St. George Foreign Exchange will monitor the currency markets on your behalf and execute the transaction, should the exchange rate be achieved. This allows you to focus on your business, without having to check the exchange rates on a daily basis.
What Are The Disadvantages Of Market Orders?
Market Orders are not guaranteed. St. George Foreign Exchange will monitor the markets and execute should the target exchange rate be achieved. However, if the market does not reach the levels set then, the market order will remain outstanding. Should this be the case, and the time has come to book a transaction anyway, you would have to book at the Spot Rate on the day which could offer a lower exchange rate than your target.
Market Order Options:
Stop Loss Orders vs Limit Orders
Speak to a specialist at St. George Foreign Exchange to discuss the Market Order options available to you.
What is a Limit Order?
A limit order allows you to nominate a desired exchange rate. If the market reaches it, you are able to secure the transfer at a more favourable rate. The limit order is entered into a system and exchange rates monitored. Therefore, if the desired exchange rate is met at a future date, the transfer is processed.
What is a Stop Loss Order?
Stop-loss orders prevent you from losing out should the markets take a downturn. These are effectively the opposite of limit orders. You can secure a minimum rate you are willing to go to. If the market falls below that rate, you can still secure the transfer at the set rate to a specified level. This helps avoid any further declines and minimise losses.
Market Orders:
Example
Limit Order Examples
An electrical supplier anticipates a large stock purchase in 6 months’ time and wishes to exchange $250,000. The current exchange rate from USD to GBP is low at 0.725.
To prevent a significant loss, the company takes out a limit order with St. George Foreign Exchange to exchange at a higher rate of 0.835 within 6 months.
The exchange rate increases within 4 months at which point their funds are automatically converted saving the company over $32,000.
Stop Loss Order Example
A retired couple wishes to repatriate their saving of £500,000 from the UK to the USA. They want to get the best rate for the conversion, so they have taken out a Limit Order at 1.225, as well as a Stop Loss Order at an exchange rate of 1.125.
Suppose the exchange rate declined. However, the Stop Loss order automatically exchanged their money for $562,500 before it lowered significantly more
Had they exchanged their money 2 months later, they would have exchanged for $525,000, which is $37,500 less they would have received.
Risk Management:
Market Orders
Using Market Orders to Manage Exchange Rate Risk.
Market orders are a useful tool to manage exchange rate risk. It is common for limit orders and stop loss orders to combine and form part of a currency risk management strategy, alongside spot contracts and forward contracts. For example:
- 40% of the USD value purchased as a forward contract at a rate of 1.30
- 40% of the USD value set as a limit order to buy USD at a rate of 1.33. This includes a stop loss order to buy USD at 1.25 to protect the downside should the USD strengthen against the GBP
- 20% of the USD value to buy at the spot rate in 12 months’ time when the payment is due to the supplier
While this is a basic example, it demonstrates how the company has secured 40% of the USD value required to buy at a rate of 1.30. They have the potential to buy another 40% should the market move in their favour and reach 1.33, whilst protecting against a sharp downturn. Lastly, they secure 20% of the value at the spot rate in 12 months’ time.
Once the market order is set, there is no obligation on the company to fulfil the orders as long as the target rate is still outstanding. This means they can alter the exchange rate targets as time goes by.
In the above example, should the rate continue to increase to 1.35, the 40% market order would have executed. Furthermore, another order for the remaining 20% value can be set to take advantage of rates continuing to strengthen.
St. George Foreign Exchange can help you to set and amend your risk management strategy to help you mitigate risk whilst maximising returns.
FAQ:
Spot Contract:
Market orders are instructions to a specialist foreign exchange broker, such as NewbridgeFX, to buy or sell currencies at a specific exchange rate that is not yet available in the market. Market order types are either Limit Orders or Stop Loss Orders.
By setting a Market Order it is possible to secure a target exchange rate in the future, which allows for better budgeting. NewbridgeFX will monitor the currency markets on your behalf and execute the transaction, should the exchange rate be achieved. This allows you to focus on your business, without having to check the exchange rates on a daily basis.
Limit orders are an instruction to buy or sell currencies at an exchange rate above the current market levels. These are useful if you want to achieve a higher exchange rate in the future, should the exchange rate strengthen.
Market Orders are not guaranteed. NewbridgeFX will monitor the markets and execute should the target exchange rate be achieved. However, if the market does not reach the levels set then, the market order will remain outstanding. Should this be the case, and the time has come to book a transaction anyway, you would have to book at the Spot Rate on the day which could offer a lower exchange rate than your target.
Stop loss orders are an instruction to buy or sell currencies at an exchange rate below the current market levels. These are useful if you want to protect yourself against a downturn in the currency markets, or budget for the minimum exchange rate you would want to achieve to secure more certainty in your transfer.
Products:
Manage Risk
St. George Foreign Exchange offers a specialist service in the deliverable foreign exchange market, promoting a range of products and services, available online or over the phone. Our products have been designed to meet the needs of our clients when sending money overseas, and are ways for businesses, and individuals, to manage and mitigate currency risk.
Spot Contract
A Spot Contract from St. George Foreign Exchange allows you to exchange currency at the current market rate for immediate settlement, ensuring quick.
Forward Contract
A Forward Contract from St. George Foreign Exchange secures an exchange rate for a future date, safeguarding your transactions from currency volatility.
Market Order
A Market Order from St. George Foreign Exchange lets you set target exchange rates, automatically executing transactions when the market meets your desired rate.
Rate Alerts
Rate Alerts from St. George Foreign Exchange notify you of favorable currency movements, helping you make informed exchange decisions at optimal times.
Testimonials:
St. George Foreign Exchange
Benefits:
St. George Foreign Exchange
Tailored Currency Solutions
Customized strategies to meet unique business and individual needs, ensuring efficient and personalized service.
Competitive Rates
Access to favorable exchange rates helps optimize costs, benefiting your cash flow and profitability.
Risk Management
Tools like Forward Contracts, Spot Contracts, and Market Orders reduce exposure to currency fluctuations, providing stability in financial planning.
Efficient Global Payments
Seamless international transactions for paying overseas staff, suppliers, and other foreign exchanges, simplifying global operations.
Market-Leading Online Platform
A secure, user-friendly platform to manage foreign exchange transactions in real-time, offering convenience and control.
Proactive Support
Dedicated, customer-led support helps clients make informed currency decisions, ensuring optimal timing and pricing for transactions.