Market orders enable businesses to target a specific rate of exchange that is not currently available. If your business dealings mean that you require a specific price, then you can activate a market order that will secure that price when it becomes available. If you require an immediate transfer, then a spot contract will likely be the best option and, equally, if you want to protect yourself against any adverse fluctuations in the currency markets, you might be better considering a forward contract. But if the chief requirement is securing a rate that is not available in the market, using a market order can facilitate an easy means of achieving this.
Put simply, a market order is an instruction to a trader that you want to achieve a specific currency rate in the future. Our team will then place a market order to ensure that when that rate is hit, you will secure it for the pre-agreed amount you want to exchange. Naturally, requesting a rate is no guarantee that the rate will be hit, but if it is hit, we guarantee execution.
A market order is usually done immediately, but you can give additional instructions, such as a limit order or stop loss order, which means the market order will be completed at some point in the future, dependent on market movements.
Why use Market Orders?
If your business does not need to make international payments immediately, but will likely have to at some indeterminate point in the medium- to long-term, then market orders can be an extremely part of your currency risk management toolkit. Our team is on hand to discuss your specific requirements, talk you through the relevant options, and help you determine which type of market order is the correct one for you. We offer two types of market order:
Stop Loss Order
What is a Limit Order?
A limit order enables you to set a specific rate of exchange that is above current market levels. Once this rate is reached, you will automatically purchase your currency. Limit orders are particularly useful if you know you need to make a payment in a foreign currency at some point in the future, but are not bound by tight deadlines. If this is the case, then it is worth using a limit order to try and achieve a better exchange rate than the one available at the present moment. Putting plans in place to take advantage of favourable currency movements can be an astute move for businesses with dealings in foreign currencies.
What is a Stop Loss Order?
A stop loss order works in a similar fashion to a limit order, but instead of specifying the target rate at which you want to purchase currency, you specify the minimum exchange rate at which you would be willing to trade. It might seem counterintuitive to set a rate below what the market is currently offering, but a stop loss order ensures that if the markets turn against you, you will not lose out. If, for example, you know that your budgeting factors in a specific exchange rate, then you can activate a stop loss order at that rate, thereby ensuring your financial commitments can be met.
It is worth noting that limit orders and stop loss orders are often run together as part a business’s currency risk management strategy. By putting both in place, you are able to try and achieve a favourable exchange rate (limit order), but are also protecting yourself against unfavourable market moves (stop loss order). If both are run together, then at the moment the limit order or stop loss order is triggered, then the other is automatically cancelled.
Example of a Market Order
Let’s imagine you know your company needs to exchange £1 million into US dollars at some point in the mid- to long-term future. At the time of contacting one of our traders, the rate is $1.3500. After speaking with one of our dedicated team members, you decide to activate a limit order of $1.3800. However, knowing that you will need to exchange £1 million into US dollars regardless of the rate at some point in the future, you bracket the limit order with a stop loss order of $1.3200.
Two months later, the $1.3800 rate is hit and your limit order is triggered. You exchange £1 million at $1.3800 and receive $1,380,000. This saves you $30,000 against the rate it was when you activated the limit order and stop loss order (£1 million at $1.3500 = $1,350,000).
Please note that the example above includes indicative rates only. While these do reflect rates Smart Currency Business offers, they do not guarantee rates you might receive.