Order types: market, limit, stop
What you learn in 3 minutesThis lesson shows how the same idea to buy EUR/USD can be placed in three ways, and why each way gives a different entry price. You will work out the cost of one pip on one standard lot in shillings, so you can see what a small price difference means in money.
One idea, three prices: 1.0850, 1.0830 and 1.0870
| Step | Amount | Note |
|---|---|---|
| Market order entry | 1.0850 | The current EUR/USD price when the order is sent. The fill is at or very near this level. |
| Limit order entry | 1.0830 | A better price for a buyer: 20 pips below the market. The order waits until price falls to this level. |
| Stop order entry | 1.0870 | A worse price for a buyer: 20 pips above the market. The order triggers only if price rises to this level. |
| Pip value on one standard lot | KSh 1,000 | One pip is 10 units of the quote currency. At an exchange rate of 100 KES to 1 unit, 10 units = KSh 1,000. The rate varies. |
| Cost of the 20-pip difference | KSh 20,000 | 20 pips × KSh 1,000 per pip. This is the money difference between the best and worst entry in this example. |
The broker may round the fill price, charge a spread or commission on top, and the exchange rate used to convert the pip value into shillings will vary between brokers and over time.
The mistake people make here
The common mistake is to use a market order when you already know the price you want, and then accept whatever price appears. That turns a planned entry into an unplanned one. Instead, decide the price first, then choose the order type that matches it: a limit if you are waiting for a better price, a stop if you only want to act after price moves against your view. Check the pip value in shillings before you send anything, so the difference between 1.0830 and 1.0870 is a number you have already seen.Check yourself
If one pip on one standard lot is worth KSh 1,000, what is the pip value on 0.10 lots?
KSh 100. One standard lot is 100,000 units; 0.10 lots is 10,000 units, so the pip value is one tenth of KSh 1,000.
A limit order at 1.0830 fills, and price later reaches 1.0850. How many pips is that move, and what is it worth on 0.10 lots?
20 pips. On 0.10 lots each pip is KSh 100, so 20 pips is KSh 2,000. This is before any spread or commission.
Why might a stop order at 1.0870 fill at 1.0875 instead?
A stop order becomes a market order once the trigger price is reached, so the fill depends on the price available at that moment. Slippage can make the fill worse than the trigger.