Placing an order is as simple as that: choose the currency pair, the amount of the base currency you want to trade, and if you want to buy or sell, when trading with an online platform, just click and there you are.
But though it sounds very easy, the forex market has its own rules, uses and usual practices.
In order to trade properly will provide you with important guidelines and tips.
But moreover, when taking a position on the market, your exposure has to be consistent with your feeling of the market sentiment, the trading time frame you defined and your financial capacities, that’s what we call trading forex with a strategy.
Forex order types
A market order is a commitment to the brokerage company to buy or sell a security at the current price. Execution of this order results in opening of a trade position. Securities are bought at ASK price and sold at BID price.
For example, if EUR/USD is priced at [BID] 1.30001/1.30027 [ASK]. It means in order to buy 1 unit of euro, you need to pay 1.30027 US dollar. 1.30027 is also the known as the ask price. It’s the price that dealer willing to sell. Conversely, if you would like to sell euro against US dollar, you would sell at 1.30001. It’s also known as the bid price, meaning it is the price that dealer willing to buy from you.
As you see in the example above, there’s a difference between the bid and ask price. This difference is known as spread and varies depending on the currency pair being quoted. Because SmartTradeFX does not widen the spreads from the liquidity provider, we do add a slight commission charge to each trade.
A stop-loss order is used for minimizing of losses if the security price has started to move in an unprofitable direction. If the security price reaches this level, the position will be closed automatically. Such orders are always connected to an open position or a pending order. The brokerage company can place them only together with a market or a pending order. Terminal checks long positions with BID price for meeting of this order provisions, and it does with ASK price for short positions.
For example, EUR/USD is trading at 1.30001/1.30027. You enter a market order to buy the Euro at 1.30001. To assist in risk management, you can preset a close price (stop-loss order) where your position is automatically closed at that price. If you set your stop-loss at 1.19501, when EUR/USD price reaches 1.29501/1.29527, you will be taken out of the market will a loss of 52.6 pips. 1.30027 [entry price] -1.29501 [close price] = 0.00526.
PLEASE NOTE that a stop-loss price is not guaranteed, as no orders are.
During volatile market times, your stop order may not be able to be honored at the exact price desired, and you will receive the next best executable price.
As noted above, a stop loss is intended for minimizing of losses when the security price moves in an unprofitable direction. Conversely, if the position becomes profitable, a stop-loss can be manually shifted to a break-even level. To automate this process, a trailing stop was created. This tool is especially useful when the price changes strongly in the same direction or when it is impossible to watch the market continuously. A trailing stop is always attached to an open position and works in client terminal, not at the server like a stop loss. As soon as profit in points becomes equal to or higher than the specified level, command to place the Stop Loss order will be given automatically. The order level is set at the specified distance from the current price. Further, if price changes in the more profitable direction, trailing stop will make the Stop Loss level follow the price automatically, but if profitability of the position falls, the order will not be modified anymore. Thus, the profit of the trade position is fixed automatically.
Limit Order (Take Profit)
A take profit order is intended for realizing a profit when the security price has reached a preset level. Execution of this order results in closing of the position. It is always connected to an open position or a pending order. The order can be requested only together with a market or a pending order.
For example, EUR/USD is trading at 1.30001/1.30027. You enter a market order to buy the Euro at 1.30001. To assist in risk management, you can preset a limit order (take profit) where your position is automatically closed at that price. If you set your limit at 1.30505, when EUR/USD price reaches 1.30505/1.30529, you will be taken out of the market with a profit of 50 pips. 1.30505 [close price] -1.30001 [entry price] = 0.00504.
A pending order is the clients request for a order based on specific conditions. Such orders are kept internally and only when the orders are triggered and converted into a market order are they send to our clearing.
1. Buy Limit – buy provided the future “ASK” price is equal to the pre-defined value. The current price level is higher than the value of the placed order.
2. Buy Stop – buy provided the future “ASK” price is equal to the pre-defined value. The current price level is lower than the value of the placed order.
3. Sell Limit – sell provided the future “BID” price is equal to the pre-defined value. The current price level is lower than the value of the placed order.
4. Sell Stop – sell provided the future “BID” price is equal to the pre-defined value. The current price level is higher than the value of the placed order.