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Sunday, 28 July 2019 20:30

Order Types

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When trading in the forex market, there are certain types of orders that you need to understand. To have the basic understanding of what they are and what they do is crucial to your success in forex trading.

 

Market Order:

 

A market order is an order you give to your forex broker to either buy or sell a certain currency at the current market value.

Because the market value is constantly changing, the actual traded value may be different from what you ordered. During a volatile market, this could lead to an unexpected surprise to a beginner trader. For this reason, it is usually a good idea to not place market orders during times of market turmoil. For more information on the market order, click here.

 

Pending Order

 

A pending order is an order to open a position when the current market price hits the target price.

The order will be executed even if you are not logged into your trading station. With pending orders, you don’t have to be at your computer at the time of the order. You can be away from your computer; you can be at work or sleeping, and still your order will be filled.

A limit order eliminates the possibility of negative slippage and ensures a precise enter position at the price you specify. With a limit order, you buy a currency pair/stock/commodity at no more than a specified price, or to sell at no less than a specified price. While the price is guaranteed, however, there is a chance that your order may not be filled if the specified price is never met, and you may miss out on the profitable trading opportunity.

There are four types of pending orders: Buy Limit, Sell Limit, Buy Stop and Sell Stop.

This is a little confusing concept to grasp at first, so try to understand the differences between these four types of pending orders and do some practice on your demo account.

 

  Buy Limit:

  • Buy limit is an order to open a BUY position (Long position) at a lower price than the current market price.
  • Buy limit is used when you are anticipating the market movement to reverse and the price would start going up once it hits the PRZ (Potential Reversal Zone).

 

  Sell Limit:

  • Sell limit is an order to open a SELL position (Short position) at a higher price than the current market price.
  • Sell limit is used when you are anticipating the market movement to reverse and the price would start going down once it hits the PRZ.

 

  Buy Stop:

  • Buy stop is an order to open a BUY position (Long position) at a higher price than the current market price.
  • Buy stop is used when you are anticipating the price to keep going up in the same direction of the current market trend.

 

  Sell Stop:

  • Sell stop is an order to open a SELL position (Short position) at a lower price than the current market price.
  • Sell stop is used when you are anticipating the price to keep going down in the same direction of the current market trend.

 

Stop-Loss Order:

 

The stop-loss order puts a ceiling over the losses by specifying the maximum amount of unrealized losses that you are willing to take.

Therefore, the stop-loss order serves as a safety mechanism for forex traders and is a crucial feature you need to utilize when trading in the forex market. As with limit orders, the execution of stop-loss orders is automatic. For more information on stop-loss order, click here and here.

 

Last modified on Sunday, 28 July 2019 21:26
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