The forex market is taking the financial world by becoming the most influential and traders-packed financial market worldwide. Experienced forex traders know how to work the market to their advantage, maximizing profits and minimizing losses.
Compare Forex Brokers has estimated that daily forex trading is over $6.6 trillion, whereas the overall value of the FX market is $2.409 quadrillion.
Regarding forex tactics, certain types of forex orders can make trading beneficial for the participants in the forex market. Read this article below for more about forex orders and what each entails.
What are Forex Orders?
Forex orders are actions that help traders make their trades as it outlines how a trader enters or exits a forex trade.
Using your broker’s trading platform, you send an offer to open or close a transaction.
There are commonly five forex order types:
- The market order
- The stop-loss order
- The limit order
- The take-profit order
- The trailing stop order
Market Order
This type of forex order is used when you want to enter or leave a trade at a particular time when it’s most convenient for you. To do that, you give your forex broker the market order, and the process is set in motion.
Keeping in mind just how fast-paced and rapidly changing the forex market is, this order comes with a specific drawback.
In particular, the price at the moment of issuing the order and the actual price can differ, leading to a loss of pips (the tiniest price fraction arranged by currency markets to set the currency pair price). So, even if you have used the order at a specific price, you still don’t have control over what price it will be.
Stop-Loss Order
Once you have reached the sought-after price on the market, you can use the stop-loss order with your broker to leave the trade. This particular forex order halts your potential capital losses in a single trade, and it’s considered a compulsory order during forex trading.
Even though it might sound like a lot to take in, luckily, there are ways for you to grasp the concept by deciding to learn forex trading online and get all the information you may need.
Besides protecting you from massive trading losses, the stop-loss order also comes in handy for minimizing any rash decisions that might lead you to overtrade.
Limit Order
An order placed to buy an asset below the market or sell above the market price is considered a limit order. When the market reaches the limit price, this is the order to be used for buying or selling.
Essentially, the purpose of this order is to prevent the risks occurring by any price fluctuations, which is why this forex order is most commonly a part of risk-managing systems.
Take-Profit Order
When your trade reaches the estimated profit point, you can place the take-profit order with your broker and instruct them to close the trade.
Keeping in mind that the price can go either way, traders are advised to set a preferred value for the take-profit order so the trade can be automatically closed once the goal is reached.
This particular forex order is typically paired with the stop-loss order. When these two orders are combined, a risk-to-ratio emerges, i.e., you get a formula that keeps the downsides of your financial actions lower than the upsides.
Trailing Stop Order
The trailing stop order is used when you want to make sure you minimize your profits by placing a percentage or amount where you would like the broker to activate the buy/sell service.
This is a type of a stop-loss order, except that the trailing stop order is more flexible as it moves according to the price fluctuation in the pre-set amount.
For example, you can place a stop trigger if you have a share of $50 and want to ensure you don’t lose a lot with their fluctuation. If you put it at $1, you can sell the second your shares hit $49. But if they hit $55, note that you will still have to deduct the $1, meaning you will receive $54.
Conclusion
One of the basics of forex trading is knowing which options are at your disposal.
The forex orders aim to enable traders and brokers seamless trading, cutting back when needed and pushing forward when the time is right.
There are plenty of forex orders, but the five types we’ve covered are the go-to tools to make or break your trade. Note that each serves a different purpose, so make sure you first understand how to use them before assigning an order to your forex broker.