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During the last decade, Forex trading has become one of the most attractive business opportunities to reach the interests of people around the world. Every day, people from many walks of life are actively considering entering the lucrative world of foreign exchange markets because of its accessibility and trading features.
One of the first things you will do once you decide to enter and learn about the forex markets will be to choose your forex broker and then download the free trading platform software from your broker’s website.
When you first open your trading station software, you will discover that there are several ways to enter the market put another way, there are several ways to place an initial order to buy or sell any currency pair.
One of these types of orders is what is called a “market order”; this is an order to buy or sell a currency pair at the market price, considering the instant the order is received and processed (which is usually within seconds of hitting the “OK” button on your trading platform). When a market order is placed, it is simply saying “I will buy or sell the currency pair at the price it is at when my order is processed”.
There is a different way to enter the market which is called an “entry order”; this is an order to buy or sell a currency pair when it reaches a certain price target; which you should determine using your knowledge of technical and fundamental indicators. In theory, this could be any price. You can set an entry order to the low price of a period, or the high price of the same period’; it all depends on your intentions, to sell or to buy. As an example, a usual recommendation is that you should always set an entry order to be the same price as the ‘open price’ of the period. When you place an “entry order” to buy, for example, you are simply saying “I want to buy this currency pair at a certain future price and if it never reaches that price, I will not buy the pair.”
Stop and Limit orders are two different ways to exit a trade, automatically (i.e. without closing your position by mouse click or manually) after the trade has been entered. And they are widely used as safety locks so that you don’t end up losing everything on a bad trade. In short, you should always use stops and limits when trading in the currency markets.
A “stop order” is used to prevent losses. A “limit order” (recommended if you cannot control your open trade) is used to redeem profits. Where these orders are placed, relative to your open trade, depends on the direction of the entry order, that is; whether to buy or sell.
Remember; a “stop order” is always placed below the current market value of that currency pair when you are in a long (buy) trade. And a “limit order” is always placed above the current market value of that currency pair when you are in a long (buy) trade.
