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Forex
Market, Main Types Of Orders
There
are many kinds
of orders which traders can place to transact in the Forex market, for
making
profit out of it.
· Market
Order
The
market order is
the most simple and common kind or order. Here, the trader buys and
sells the
currency at the rate prevailing in the market at the time of placing
the order.
Due to the huge size of the market and the high volatility, trends can
reverse
any instant, so people prefer placing orders at the market price to
guard
themselves against any adverse trend.
· Limit
order
In
this case, the
trader specifies a price at which he may wish to buy or sell the
currency. Suppose
a trader has bought GBP against the USD at 1.9710, then he can place a
sell order
at 1.9725, when the exchange will execute the order and he will profit
from it.
The order will get cancelled if the target price is not achieved during
the
day.
· Stop
loss order
Due
to the
volatility, stop losses are essential. They determine the maximum loss
a trader
is willing to suffer. Suppose in the above instance, the risk-taking
ability of
the trader is low, then he may place a stop loss at 1.9705, at which
level the
exchange will book losses for him, and he won’t be affected by any fall
below
1.9705.
·
Entry
order
Such
an order is
filled only when certain conditions are met in the market, which the
order specifies.
The entry order can be a limit entry order or even a stop entry order.
- Limit entry order
As an example, let’s assume
that the current
market price for GBP/USD is 1.9705-10.
This implies that the trader can transact
at these levels. Here, a trader
can put a limit entry order to sell his holdings at
a price more than
the market price, say, 1.9715. His order would be
executed only if that
price is attained. In the similar manner, he can place an
order for
buying at a level of, say 1.9700, and his ‘buy’ order would remain
pending till
the price falls to that level.
- Stop
entry order
Such
an order is
generally used when the trader has sufficient grounds to believe that
the currency
is trading in a fixed range and believes that it is on the verge of a
breakout
from that range. He might want to buy at a price higher than the market
price
or sell at a lower price than the market price. In the same example,
the trader
may go ahead and buy at 1.9720 or sell at 1.9690, where he believes
that once
these levels are attained, the currency will only go up or fall
further, as the
case may be. A trader exercises the stop entry order only when a trader
has
reasonable grounds to believe that there will be sharp movements in the
currency rates in the Forex market.
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