What is a stop order?
A stop order is an order to buy or sell a currency once the price reaches a specific price, known as the stop price. When the stop price is reached, a stop order becomes a market order and is executed at the best available price (which can be lower or higher than the stop price).
Stop orders aren't guaranteed to execute until the price of the currency reaches the set stop price.
How do buy stop orders work?
For a buy stop order, you place a threshold (or ‘stop’) on how much you’ll buy a currency for. Your order triggers when the current price goes beyond your ‘stop price’. It may execute at a different price depending on fluctuations.
Example: You see the Euro is steadily rising. The current market rate is €1 = £0.87, and you decide to buy Euros as soon as the rate rises to £0.88. You suspect Euros might rise beyond that price, and you want to buy before the rate increases any further, saving you money. You set your limit price to £0.88.
- If the FX rate rises from £0.87 to £0.88, your buy stop order will become a buy market order and your order will be executed at the best price available
- If the FX rate doesn’t rise to £0.88, your order won’t execute
How do sell stop orders work?
For a sell stop order, you place a threshold (or ‘stop’) on how much you’ll sell a currency for. Your order triggers when the current price goes beyond your ‘stop price’. It may execute at a different price depending on fluctuations.
Example: You see that Euro is steadily falling. The current market rate is €1 = £0.85 and you decide to sell Euros as soon as the rate falls to £0.85. You think Euros might fall further and you want to minimise any potential losses. You set your stop price to €1 = £0.85.
- If the FX rate drops from £0.87 to £0.85, your sell stop order will become a sell market order and your order will be executed at the best price available
- If the FX rate doesn’t drop to £0.85, your order won’t execute
Currency exchanges are subject to change based on the market rate, so they may vary. Learn more about currency exchanges for your business.