Stop loss execution policy in forex trading is somewhat different that in equity trading. Stop loss orders to sell are triggered if the broker bid price reaches your stop loss order rate. Suppose, your stop loss order to sell is 1.2830! The brokers lowest price quote is 1.2830/1.2833. Your stop loss order will be executed. The same goes for buy orders.
The benefit of this practice is that some brokers will guarantee against slippage on your stop loss order under normal trading conditions. Most of the brokers will never guarantee stop losses around the release of economic reports. The downside of this is that your stop loss order will be executed earlier, so you will have to add in extra cushion when placing them on your forex platform.
One-Cancels-the-Other Orders: A one cancels the other order (abbreviated as OCO order) is a stop loss order paired with a take profit order. An OCO order is the ultimate insurance policy for any open position! Your position stays open until one of the order levels is reached by the market and closes your position. When one order level is reached and triggered, the other order is automatically cancelled.
OCO orders are highly recommended for every open position. Lets make it clear with an example. Suppose you are short USD/JPY at 120.00. You think that if it goes up beyond 120.00, its going to keep going higher. Thats where you decide to put your stop loss buying order.
At the same time, you believe that USD/JPY has downside potential to 118.50. So you set your take profit buying order at 118.50. You now have two orders bracketing the market. Your risk is clearly defined. As long as the market trades between 120.00 and 118.50, your position remains open. If 118.50 is reached first, your take profit order is triggered and you buy back at a profit. However, if 120.00 is hit first, your position is stopped out at a loss.
Contingent Orders: A contingent order is an order where you combine several types of orders to create a complete currency trading strategy. Contingent orders are also referred to as if/then orders. If/then orders require the If order to be done first. Only then the second part of the order becomes active. So they are sometimes also called If done/then orders.
If the trading platform offer rate reaches your buy rate that means your limit order is only executed. Similarly, a limit order is only executed if the trading platform bid price reaches your sell rate. Your order is only filled based on the price spread of the trading platform. This is the key feature of most forex broker order policies.
Suppose you have a buy order to sell GBP/USD at 1.2655. Your brokers spread on GBP/USD pair is 4 pips. If the trading platform price is 1.2655/1.2659, your buy order will be filled. If the lowest price is 1.2652/1.2656, the limit order will not be filled as the brokers lowest rate of 1.2655 does not match your buy rate of 1.2656. Almost the same thing happens with limit orders to sell.