Market Orders 101

Posted Under: News

The basic idea of market orders is simple. You choose a desired exchange rate between any two currencies, and place a buy or sell order. When the market reaches your specified rate, we’ll automatically execute the order on your behalf. Meanwhile, you can sit back and focus on other important matters affecting your business. Consider these scenarios:

Overnight volatility: In the middle of the night (Eastern), the euro value starts plummeting against the U.S. dollar, creating an optimal moment to buy the euro your business will need soon.

Waiting for the right exchange rate: You need to make a large payment to a supplier in Australia sometime within the next three months. You have enough USD cash on hand, but you’d prefer a more attractive exchange rate.

Too busy to watch the market: The USD/MXN exchange rate has been highly volatile this year. You’re worried the peso’s value could drop to a point that wipes out business profits. But you’re too busy to closely monitor the FX market.

FX market shifts pose either a threat or an opportunity to your business in all of these situations. For all of them, market orders are a key tool that helps your business make the right move at the right time—while you rest easy.

Remember that the FX market operates 24/5, so price drops or spikes can happen while you sleep. With market orders auto-executing around the clock, you get peace of mind that a bank with limited operating hours can’t offer.

Let’s go a little deeper, and look at the different types of market orders and how they let you plan for both best-case and worst-case scenarios.

Take-Profit Order

This type of market order allows you to buy or sell currency at your “best-case” exchange rate. You choose a target rate better than current market level. The moment this rate is reached, you take advantage of favorable conditions and, as an importer you’ll pay less for your currency, or as an exporter you could receive more of your home currency. 

Stop-Loss Order

This type is the inverse of take-profit orders. Stop-loss orders afford you protection against unfavorable market movements by letting you define the minimum rate your business can tolerate. You choose a “worst-case” rate—say, the point at which profits would be lost—and place an order.

Putting It All Together

Consider how both kinds of orders described above could work in tandem to provide your business with stability by guaranteeing that your exchange rate remains in a specified range.

Let’s go back to the Australian supplier scenario mentioned at the outset. You will need to make a AUD5 million payment within three months and have enough USD cash on hand, but are waiting for a better USD/AUD exchange rate. At the same time, you don’t want to get burned if the rate considerably worsens.

Today, $1 buys about 1.4850 AUD.  You place a take-profit order for AUD5 Million and 1.5000 while also placing a stop-loss order at 1.4700 to hedge against the risk of a rapidly appreciating Australian dollar. A week later, your take-profit order is triggered and your 5M AUD is automatically purchased at 1.5000 for $3,333,333.  That represents a benefit of almost $34K compared to the initial 1.4850 USD/AUD rate.

A final point: For all types of market orders, there’s no cost or fees, and orders can be easily modified or canceled if your designated rate has not been met by a certain date. But the main thing to remember about market orders is that they let you protect (or enhance!) your business profits, while relieving you of any need to monitor the non-stop FX market.

Leave that part to us.

(Updated July 2022)