Forex Trading Made Easy

Forex Trading Order Types - Market Orders and Limit Orders

In this part of our Forex Trading Made Easy tutorial, we will discuss about forex trading order types. As a trader, you need to understand what some of the order types that forex trading brokers provide are.

Market Order

A market order is an order executed to buy or sell at the prevailing market price for the currency. Let us use the EUR/USD currency pair as an example. For instance, it is trading at 1.2121. If you intend to buy at this exact currency price, you just click the “BUY” icon and your trading platform would instantly lock in this price and execute a buy order.

Limit Order

A limit order is an order that is placed to buy or sell at a particular set price. There are two components to the limit order – the price and the duration. Again, we are using EUR/USD currency pair as an example which is trading at 1.2121 now. You want to take a long position (remember what we learnt earlier) on this currency pair and anticipate that it will reach 1.2150 where you will take profit. There are two ways to achieve this.

One of them is of course to monitor your computer until it hits 1.2150 and then you execute a market order or you can simply set a Sell limit order at 1.2150. That way, your trading platform would automatically execute a Sell when it hits 1.2150. It is pretty much hands-free as you can do your own thing once you set a limit order. Likewise, you can use a limit order to set a Buy limit order at certain price.

So in short, you predetermine what the price you wish to buy or sell for a specific currency pair. You also specific clearly how long you want the limit order to stay active (GTC or GFD).

Stop Loss Order

A stop loss order is actually a limit order linked to an open position to limit losses should the prices fall instead of an expected rise. Naturally, if you are taking a long position on EUR/USD at 1.2215, you also have to decide at what price you should sell if the prices fall instead. This is called loss cutting.

Say you can only stomach a small loss of 15 pips, so you decided that you should set a stop-loss order at 1.2200. Assuming that the market does work against you and EUR/USD drops to 1.2200, the trading platform would automatically execute a SELL limit order and close out your position.

Stop loss orders are useful if you do not wish to face your computer screen for the entire day. I encourage you to set stop loss orders for each trade you make so that you need not have to monitor it all the time. Traders also make multiple trades a day so it can get all confusing if you do not make use of stop loss orders.

There are forex trading software that help you to place stop loss orders so that even if you take losses, it is limited. One such powerful software is the Forex Killer which works well no matter if you trade at Easy Forex or other forex trading platforms.

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Filed under: Forex Trading, Learn Forex Trading by admin