What Every Forex Trader Should Know When Placing Orders
Making transactions with one’s broker requires that the trader has knowledge of the proper way of placing his orders. How Forex orders are placed depends on the method used by the trader when transacting; to be specific, his order placement depends on how he plans to use his preferred platform.
Types of Order Placement
Market Order: This is the most frequently used method of placing orders, especially when the trader wants his orders to be placed immediately by his broker. Order placement is based on the real-time market price that is displayed on the platform’s graphical user interface.
Stop Order:cUnlike the market order type of placement which depends on the current market price, a stop order is one that can be placed by a broker only when a specific price set by the trader is matched by the current market price. A trader may opt for either a buy-stop order, wherein a currency pair may be purchased at a price that is equal to or higher than the market price, or a sell-stop order, wherein a currency pair may be sold at a price that is equal to or lower than the market price.
Stop orders are useful in cases when a trader wants to buy a currency pair that has a high potential for rising in value, or in selling a currency pair before it reaches the point where its value is reduced. Placing a stop order also helps a trader plan his orders to minimize his losses, as well as protect his gains.
Limit Order: This type of order is placed by a trader who desires to go beyond the current market price and specifically asks his broker to trade only at a specific price. Orders can only be placed once the market price equals or surpasses the said price set by the trader. Two options are available: a trader may ask his broker to place a limit-buy order, wherein the broker sells a currency pair once the market price matches or while it is lower than the price set by the trader; or the broker could place a limit-sell order once the market price matches or goes higher than the price set by the trader.
Placing limit orders helps a trader limit his losses and protect his gains, in a way that is the opposite of stop orders.
Knowing the different types of order placement methods used by brokers helps a trader to avoid losing his profits and to keep them growing.