Foreign Exchange Trading Orders

An order is an integral part of Forex trading and there are various orders at the disposal of the trader. To become a successful trader, it is important to understand each of these orders. We can take a detailed look at each order separately.

1. The first one is the market order. The Forex market order specifies that a trader can buy or sell the currencies only on the current market price. These orders can be used to enter the trade or exit from the trade. When the Forex market is moving fast, there will be a price difference between the one existing at the time of issuance of a market order and during the actual transaction time. In a fast moving market both the prices can be quite different. This price difference happens due to slippage, which is the total movement of the market between issuing an order and execution of the order.

2. The second order is known as the limit order. This limits a Forex traders buying capacity or selling capacity. These orders are used to buy a certain currency at a lower price than the market price and sell it for a higher price than the market price. There are no slippages related to this order.

3. The third of the kind is the stop order. In this order, a Forex trader can buy currencies above the price in the market and sell it lower than the price in the market. These orders are specifically used to reduce losses. This order will help sell currency pairs when the market price has fallen below the price quoted by a trader.

A stop order is very important tool for a trader. There are four different types of stop orders, so let’s take a look at them.

• The first one is Equity Stop order and in this order, the trader will risk only a predetermined or fixed amount of capital on a single Forex trading. The applicable amount is 2% on any trade.

• The second stop order type is chart stop. A chart stop is for Forex traders who are driven by technical information like graphs and other indicators. A chart stop can be formulated by combining exit points with equity stop rules.

• Next is the volatility stop order. It is a sophisticated version of the previous Forex stop order and replaces price by volatility for setting risk parameters. The best way to measure volatility in foreign exchange dealing is by using Bollinger Bands.

• The last one is the margin stop order. If used wisely, this order can be a very effective method of Forex trading. According to this order, a trader can divide his capital into 10 equal parts. So if a trader opens a $5000 trading account, then he/she will send only $500 to the Forex dealer and maintain a $4500 in the bank account. This way a trader will never have a negative balance in his/her trading account.

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Scott is the founder of currency trade, a community site for the active forex trader.