Orders

There are several main types in the Forex market. Here they are.

Limit Order

An order to buy or sell currency at a certain limit is called Limit Order. When you buy, your order is carried out when the market reached down your limit order price. When you sell, your order is carried out when the market reaches up your limit order price. You can use it to buy currency below the market price or sell currency above the market price. There’s no decrease with limit orders.

Market Order

The second one is Market Order. It’s an order to buy or sell at the running market price. Market orders should be used very carefully as in fast-changing markets there’s sometimes a disparity between the price when the market order is given and the actual price of the deal. This occurs because of market decrease. It can lead to a loss or gain of several pips. Market orders can be used to enter or exit a trade.

One Cancels the Other (OCO)

One Cancels the Other (OCO) order is used in case if one simultaneously places a limit order and a stop-loss order. If either order is carried out the other is abrogated which lets the broker to make a deal without supervising the market. Once the market reaches up the level of the limit order, the currency is sold at a profit but when he market falls, the stop-loss order is used.

Stop Order

The last one is Stop Order which is an order to buy above the market or to sell below the market. It’s usually used as a stop-loss order to diminish losses if the market behaves opposite to what the broker supposed. A stop-loss order lets sell the currency if the market goes below the point appointed by the broker. In Forex market there are four various types of stop-orders.

1. Chart Stop order

Chart Stop order is a technical analysis that lets elaborate many possible stops caused by the price charts’ action or by different technical indicator signs. The swing high/low point is often used as an example of a chart stop is like. In Figure a broker with our suppositional $10,000 account dealing with the chart stop can sell one mini lot at the risk of 150 points, or approximately 1.5% of the account.

2. Volatility Stop order

Another type of the chart stop is Volatility Stop order; it uses volatility instead of price action to fix risk parameters. The sense of it is that when prices strongly fluctuate, the broker has to adapt to the current conditions and let the position more space for risk to avoid being stopped out by intra-market noise, so it’s a situation of high inconstancy. On the contrary, can be a situation of a low inconstancy, in which risk parameters would need to decrease.

The volatility stop also lets the broker use a scale-in approach to get a better “blended” price and a faster breakeven point in this following Figure. The joint risk position exposure shouldn’t be more than 2% of the account; so it is extremely important that the broker uses smaller lots to properly size his or her joint risk in the trade.

3. Equity Stop order

Equity Stop order is definitely the easiest of the four stops orders. The risk is only with the predetermined amount of one’s account on a single trade. On a suppositional $10,000 trading account, a broker risks $300 which is approximately about 300 points, on one mini lot (10,000 units) of EUR/USD, or only 30 points on any dealt. Sometimes brave traders choose to use 5% equity stops. However, it’s important to realize that this sum is an the upper limit of reasonable money management as ten consecutive wrong trades would decrease the account by 50%. However, the equity stop order puts an arbitrary exit point on a trader’s position – and this is its only but a great weak point. The trade is sometimes abolished to meet the trader’s internal risk controls and not because of a logical response to the price operation of the marketplace.

4. Margin Stop order

And finally, Margin Stop order can serve as an effective method in Forex market, if te broker uses it prudently though it is used less than other money management strategies. Forex markets function uninterruptedly that’s why Forex players can wind up their customer positions immediately when they trigger a margin call. That’s why Forex customers are seldom in danger of generating a negative balance in their account as computers are supposed to close out all positions.

According to this strategy the trader should divide the money into ten identical parts. So if the capital is $10,000 the broker would open the account with a Forex dealer but only send $1,000 instead of $10,000 and leave $9,000 in the bank. Many Forex market traders offer 100:1 leverage, so a $1,000 deposit would give the trader the opportunity to take control of one standard 100,000-unit lot. $1,000 is the minimum that the dealer requires and even a 1 point move against the trader would cause a margin call.

Sometimes the trader decides to trade a 50,000-unit lot position which lets him or her to get about 100 points. Just to compare, on a 50,000 lot the dealer needs a $500 margin, so $1,000 – 100-point loss multiplied on a 50,000 lot is $500. Never mind of how much leverage the trader assumed if he’s ready to risk or not, this would stop the dealer from blowing up his or her account in just one trade and would let the dealer to take many fluctuations at a supposedly beneficial trap worrying of setting manual stops. This advice may be useful for the dealers who are used to risking a lot but also getting a lot.

Open and Close Position

The main goal of the Forex market is gaining profit from your position through buying and selling different currencies. For example, you have bought a currency, and this particular currency rises in value. In this case you gain profit if you quickly close your position. If you close your position and sell the currency back for fixing your profit, you are in fact buying the counter currency in this pair. That’s how a rate of worth has been discovered – it’s one currency value compared to another while operating with currency pairs. In the end, currency of any country has value only compared to another country’s currency.

The “position” is the netted sum commitment in a particular currency. The position can be flat or square, long or short. We call the position square when there’s no exposure, it’s long if more currency is being bought than sold, and the position is short if more currency is being sold than bought.

The goal of currency trading is exchanging one currency for another. The broker usually expects the market rate or price to change in such a way that the currency he has bought rose in value compared to the one he has sold. Currencies are always defined in pairs in the Forex market; and consequently, synchronous buying of one currency and the selling of another follow all trades operations. If you have bought a currency and the value of its price increases, the broker should sell the currency back if he wants to fix the profit at this level. What’s “an open trade or position”? It occurs when a trader has bought or sold one currency pair and has not sold or bought back the same sum to close the position.

There’s an expression – “going long” or “longing the market”. What does it mean? It’s when you want to purchase the base currency, and are also supposed to purchase the currency pair as well. Going long the EUR/USD pair means purchasing the base currency and selling the same sum in the quote currency. You should own the quote currency before selling. It is sold quickly in the open market and used to protect your long position on the base currency.

There’s also the so-called “shorting the market”. The same rules are used here as explained above only vice versa. If you see that the base currency value is getting lower than particular currency or the secondary currency is exceeding the base currency, you should not buy the currency pair but, on the contrary, sell it. Going short the EUR/USD pair means selling the base currency and buying the same sum of the quote currency at the running exchange rate.

To put this other way, one is said to be “long” in that very currency when he’s buying it. Long positions are within the offer price. So if the broker is purchasing one GBP/USD lot at the rate of 1.5847/52 means that you’ll purchase 100,000 GBP at 1.5852 USD. And one is said to be “short” in the currency when he’s selling it. Short positions are within the bid price, which is in our case 1.5847 USD.

The trader is always long in one currency and short in another at the same time because currency operations are symmetrical. So if one exchanges 100,000 GBP for USD, he’s turns out to be short in sterling and long in US dollars.

Continued and live and position is called “open”. The value of the open position changes according to the market exchange rate. All benefit and loss exist only officially and influence the margin account. Suppose you want to close your position. In this case you start an identical and opposite trade in the same currency pair. For instance, if you have gone long in one lot of GBP/USD at the predominant offer price you can afterwards close out that position by going short in one GBP/USD lot at the predominant bid price. Besides it’s impossible to open a GBP/USD position through Broker One and close it out through Broker Two as you should conduct the opening and closing trades with the help of the same mediator.