Forex Orders: When And How They Should Be Used
Category : Investing
When you are first getting started with Forex trading, it’s very important for you to become knowledgeable about the different kinds of Forex orders that you can execute, as well as the ways they can be used and when the best times are for selecting each of them. We will be taking a closer look at the major kinds of Forex orders to give you a better idea of the best kinds that will suit your trading requirements and style.
How To Execute Market Orders
The fastest and easiest kind of order to execute is the market order since it instructs a broker to execute the trade immediately at the best price that is available at the moment. What that means is that no price or time frame is stipulated so there isn’t any control over the price that the order is filled at. The advantage to this kind of order is that it is executed very quickly (depending on how liquid the market is) and that it frequently comes with a lower commission compared to other types of orders. However, there are disadvantages as well. The price could end up being much worse when the order is filled than the prices whenever the order was placed or that are seen on the screen.
A market trade should place a trade wanting to place a guaranteed trade right away, but it is better suited for longer term trades instead of day trading. For traders wanting to limit their risks, it isn’t the best type of order since price cannot be controlled.
Pending Order Defined
A pending order is a type of Forex order that is entered into via the trading platform but isn’t executed until specific conditions are met. This type of order allows a Forex trader to keep their positions open and provides them with a certain level of security since they know that when specific conditions are met on a trade, it triggers the execution of the order. There are several different kinds of pending orders, including the following:
– Take Profit
– Stop Loss
– Sell Limit
– Sell Stop
– Buy Stop
– Buy Limit
Pending orders are ideal for traders not wanting to be tied to their computers throughout the trading period. A trader can set up a profit or loss threshold ahead of time and know they were be executed if and when the circumstances they have selected occur.
How To Use The Take Profit Order
A take profit order can be used by a trader in order to close a trade after it has attained a specific level of profit. It is a kind of limit order that is frequently used in conjunction with a stop loss order in order to limit risk on executed trades. Whenever a take profit order is used by an investor, it limits their exposure to the market and risk since they will be exiting the trade once the market returns a favorable price without having to wait to see if further drops will take place. From a strategic point of view, short term trades are the best thing to use take profit orders with. Numerous investors use pivot points or average true range to define the best profit order level possible.
When The Stop Loss Order Should Be Used
You can place a stop loss order with a trader’s broker for either buying or selling after an asset reaches a specific price. This type of order is used as a tool for limiting potential losses. The advantage to using this type of order is that you don’t need to monitor the asset constantly to see how it is performing.
However, the downside is that the stop price might potentially be put into action with only a short term fluctuation in the price of the asset. The best strategy for using this kind of order is selecting a stop loss percentage that will allow for some fluctuation yet still prevent as much of the risk as possible. A good way of determining that figure is look at the overall history of the asset’s fluctuations.