An “order” in the forex market is a way to enter or exit a trade. The user interface of forex trading software is designed in such a way that a beginner can easily understand the whole process of trading in a few minutes. The process of opening and closing a position is straightforward. In this chapter, we will discuss the terms used to trade and manage the risk factor.
It is crucial that you should have a basic understanding of the following terms:
- Market Order
- Limit Order
- Stop-Entry Order
- Stop-Loss Order
- Trailing Stop Order
- Take Profit Order
So, let’s discuss these terms with examples….
A market order is an order given to the broker to buy or sell a currency at the current market price. The order is usually executed instantly; however, at the times of market agitation, there could be a delay in the order execution and price at which the position opens or closes could be shocking to a beginner. It is recommended not to trade at such times.
For Example: The current price of EUR/USD is 1.0886, and the ask price is 1.0888. Buying EUR/USD at the market price means the currency would be sold to you at the ask price. All you need to do is tap on buy, and the position will open. It is same as buying something on Amazon where you get the best price and buy an item by tapping buy button. The difference is just that Amazon is giving you an item in exchange for currency while in forex market you are getting currency in exchange for currency.
Unlike market order, the limit order is executed by instructing the broker to buy or sell a currency only when a particular value is reached. No action is taken until the price of the currency reaches the desired price. You don’t have to worry about the sudden price hike and missing a chance as the order is automatically executed. However, there is a disadvantage; it is possible that the order never executes as the price may never reach the desired price.
For Example: The current value of EUR/USD is 1.0886 and you bought its one standard lot. Now you want to sell this currency pair at the price of 1.0900. To do this, you have two options; either you sit in front of the computer and wait to hit the desired price (at which point you sell the order manually) or you can put a limit order to sell the currency at 1.0900 and walk away to the gym as the trading software will automatically hit sell order once the price of the currency hits your desired price.