|08-14-2014, 02:09 PM||#1|
An Introduction to Forex Orders
In forex trading, there are several different types of orders that you can use to make and control your trades. There are orders that control both how you enter and how you exit the market.
Market Orders are orders that are executed live on the market at the current price. A market order can be used to open or close a trade at the market price.
Limit Orders are typically orders used to exit the market in profit. If you are going long, the limit order will be above the market price and if you are going short, the limit order will be below the market price. You can think of a limit order to be like a finish line. Once the market price crosses the limit order, your trade will be closed and your profit will be realized to your account balance.
Stop Orders or Stop Loss Orders
Stop Orders are also an exit order that will close your trade. Commonly referred to as a stop loss order, this type of order is intended to limit the amount of loss incurred by your trade. A stop loss order will close your trade at a designated level of loss. Stop losses can also be used to lock in gains as your trades progress into profit.
Entry Orders are orders to enter the market at a specified price. It is almost impossible to monitor the market every second and this is why an entry order can be handy. If you feel the market may take a certain action, such as break through a price that it has been touching but it has not been able to break, you would want to use an Entry Limit Order. Once the price crosses your Entry Limit Order, you are in the market.
Entry Orders can be a double edged sword. The advantage is that you can enter the market when it moves while you are away or not paying attention. The disadvantage is the market can touch your Entry Order and take it negative before you have the chance to evaluate the move. This is where good risk management practices come into play.
Understanding different types of forex orders and their uses is an essential basic skill. Take the time to study them and try them out using a demo account.
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