When you start trading foreign exchange live, it is vital that you know exactly how to enter an order and what to expect. The foreign exchange training you have undergone should have included suitable methods of entering trades and the various order types you could make use of. Not using the proper order types could have a negative impact on your entry, as well as your exit points.
Types of Foreign Exchange Orders
A market order is the most common and easiest type of order in foreign exchange trading. This type of order is used when you want to commit to an order at the current price. If you are in the buying process, this order type will do the trade at the current ask price. If you are in the selling process, this order will enter the trade at the current bid price.
An entry order, unlike a market order, submits your trade once the currency pair has reached a price that you have specified as a target price. It sends information to the system that you are prepared to purchase the currency pair once your specified price has been reached. If the currency pair fails to reach that price level, you will not enter into any trade.
A stop order turns into a market order once your specified price has been reached. This type of order is usually used to protect your trades from losses. You can use this order type either to enter into a new trade, or to exit from an existing one.
When you make use of a stop order to enter a trade, it is called a buy-stop order. It issues an instruction to buy a currency pair at the market price as soon as the price has reached the price level specified by you or higher and that is normally higher than the current market price.
If you make use of this order type to exit a trade, it is called a sell-stop order. This order type issues and instruction to get rid of your currency pair at the current price as soon as that price has reached the level you specified or lower and that is normally below the current market price. Some of the common reasons for using a stop order include limiting your losses, protecting your profits and to enter markets if you are trading on breakouts.
A limit order is an instruction to buy or get rid of your currency at a price set at a particular limit. This order will be fulfilled as soon as the market has reached that specified price or is better. When you set a limit-buy order, you issue an instruction for the system to buy the currency pair at the current market price as soon as it has reached your specified price. When you set a limit-sell order you issue an instruction for the system to get rid of your currency pair at the current market price when the price has reached the level you specified or higher, and if that is higher than the current prevailing price. Limit orders are used to place a limit on the highest price you are willing to purchase at, or the lowest price you are willing to accept for selling your currency.
Before you commence trade placement, you should have an understanding as to the types of orders you can enter and how to use them to limit your losses.