One of the first things that you will attend to when you begin to trade Forex is how to place orders. An order is nothing but a request that you make to your broker to either sell or buy a currency pair.
Orders in Forex trading can be of different types, but novice traders tend to have the following three types:
- Market Order
- Limit Order
- Stop Order
This knowledge of how these orders operate will enable you to get in and out of trades in a more advantageous way.
Market Order
The most popular and commonly used order is a market order. It is an act of either selling or purchasing a currency at the prevailing market price.
To illustrate, when EUR/USD is at the present position of 1.1050 and you submit a market order to sell, you will immediately and directly trade upon the best available price.
The main arguments concerning market orders:
- The commerce is carried out immediately.
- You come into the market at the prevailing price.
- The one that is often used is when traders wish to enter a moving market in a hurry.
Market orders are easy and quick, and many amateurs use them.
Limit Order
Limit order will enable you to join the market at a given price that you select and not the prevailing market price.
This kind of order is effective in the event that you assume that the price will go to some level and then revert.
For example:
- EUR/USD is currently 1.1050
- You anticipate the price falling to 1.1030 and thereafter increasing.
- You place a buy limit order at 1.1030
You will only open your trade when the market will reach such price.
The main facts concerning limit orders:
- You have the freedom to choose the entry price.
- The trade is only opened at that level in the market.
- Frequently used to buy trades at a lower price.
Limit orders assist traders to anticipate their trades.
Stop Order
A stop order is entered when the price passed a specific value and entered the market. It is normally used by traders to trade strong price movements.
For example:
- EUR/USD is currently 1.1050
- You are of the opinion that the price will increase upon breaking the 1.1070 price.
- You place a buy stop order at 1.1070
At that price the market will automatically open the trade.
Key points about stop orders:
- Used to trade breakouts
- The order gets activated upon reaching a specific price.
- Assistants traders ride powerful trends.
Momentum or breakout strategies usually involve the employment of stop orders.
Why Order Types Are Important
- Knowledge of various types of orders may assist traders:
- Become a more strategic entrant.
- Avoid emotional decisions
- Plan trades in advance
- Manage risk better
Trades are not usually made by the professional traders arbitrarily. They, instead, employ the types of orders to regulate trades in regard to when and how they are to be made.
Final Thoughts
The fundamental instruments that every Forex trader must know are market, limit and stop orders.
- Market orders are immediate orders that are carried out.
- Limit orders would enable you to be placed at a superior price.
- Stop orders assist in capturing good price changes.
You will begin to use these types of orders in conjunction with trading strategies and risk management as you get more experience in Forex trading.
These are the fundamentals that should be learned when one wants to be a better and more confident and disciplined trader.
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