Introduction to Order Types
Order types in Forex trading determine and control how you enter and exit the market. It is essential to know every kind of order that you can make if you wish to go a long way forward in successful trading. These orders are critical tools and essential for trading strategies. In the absence of knowledge about these orders, a trader can get exposed to downside risk. Understanding the different types of orders helps you to know which order type suits you and your trading capacities to reach your trading goal and protect your profits.
What is a Forex order?
A Forex order is a set of instructions to a broker or brokerage firm to purchase or sell a security on an investor’s behalf. In short, it is the buy/sell information given by the investor to his/her broker. It is also called the fundamental trading unit of the market. A trader can place these orders either through a phone or online via a trading platform. Once a trader places the order, it goes under a process of order execution. Since exchanges follow a bid/ask process to trade securities, there must be a buyer selling to pay the security price as and when there is an order similarly, to buy, there must be a seller who is willing to sell the security at that particular price.
Types of Forex orders
All orders fall into different categories, broadly. However, these order categories allow investors to place restrictions on their orders accordingly, affecting the price and time of the order execution. Every order dictates a particular price level at which the order shall be executed, along with the time of how long the order should remain in force and whether it stands still or is canceled based on other orders. There are several order types providing investing discretion when a trader plans a trade. The basic order types are:
1. Market order
A market order is an instruction from the Forex trader to the broker, telling them to complete a particular trade deal, immediately, at the next available price. Such orders do not have any specific price and are mostly always executed, unless in the case of trading liquidity. These orders are used when a trader wants to get in or out of the trade quickly, irrespective of the price they get. Such action is mainly seen in a dynamic market, either during an uncalled high or an unexpected low.
- Limit buy order: Such orders instruct the broker to buy Forex at or below a certain price specified by the trader. Limit orders make sure that the buyer only pays some amount of price, which is inevitable, to purchase the Forex. Hence, they give a surety to the trader that they will not have to pay more than a certain amount if the order is executed. These orders remain in effect till the time they are completed, expired, or canceled.
- Limit sell order: A limit sell order sends an instruction to the broker to sell the Forex at any price above the current price. Such an order is used in the long positions to make profits, as and when the Forex rate moves higher after buying.
- Sell stop order: A sell stop order includes a stop price triggering the allowance of a market order. They have a specific stop price, and the trader specifies it to the broker while placing an order. If the Forex price moves to the stop price, the sell stop order is executed.
- Buy stop order: A buy stop order is an instruction by the trader to the broker to purchase a security as and when it reaches a predetermined price. Once the price reaches this level, the buy stop order is executed. It is used chiefly as a tool to protect against potential losses of uncovered short positions.
- Take profit order: These types of Forex orders represent orders that you give to your Forex broker to close the trade automatically as and when it reaches the desired position. As the price can reverse drastically, the trader needs to set a take profit value to automatically take the profit before it moves in the other direction.
- The trailing stop order: The trailing stop order order is the opposite of the take profit order. It is also called the profit protecting stop order. It is basically the order you give to your broker to buy or sell the Forex if the currency starts to move in an unfavorable direction. This order moves as the price moves, enabling you to secure profits and diminishing potential losses.
It is imperative to choose the right broker and trading platform since the Forex market is a dynamic one. Forex trading is a risky business but truly has potential opportunities with significant profits making it irresistible. The orders mentioned above help you curb the unpredictable losses to some level. However, the risk of losing it all is still there. Nevertheless, we provide you with a secure platform and an easy guide to begin your first Forex trade, as we know how interesting the game of Forex can become, and we want you to experience nothing but the best.
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