In our previous blog, we learned about the different elements of the Forex trading and we are now all set to move one step ahead and learn about the different types of orders in the Forex market. Without a long introduction, let’s get started.
Types of Orders in Forex Market
Basically, there are two types of orders in the Forex market.
- Market Order
- Pending Order
Watch the below video for further information on “Different Types of Orders in the Forex Market”.
Market order is that type of order that you can place immediately. This order requires you to be present at the time of execution. In this type of order, the transaction is made at the current market price. The trades are executed at the current ask or bid prices. The drawback of this type of order is that the stop loss or take profit points cannot be used.
A pending order is the type of order that is placed in advance. This order becomes a market order on its maturity or execution. This type of order is beneficial at a time when you know that you won’t be around to execute a market order. These orders have fewer chances of being influenced by volatility. Pending orders are of four types that can be placed for execution.
In Buy Stop, the buying of currency takes place at an ask price in the future or the time when the market reaches at a specific point. Usually, the current price of the currency is lower than the pre-determined price. This type of pending order is placed when it is expected that the price of the currency will reach a certain level and will keep increasing.
Buy limit is the order when you want to buy the currency when the market price is below than the current price in the future. In this case, the price of the currency is higher than the pre-determined price or the point where you place the buy limit. The reason why these orders are placed is because the trader expects the price of the currency to decrease to a certain level.
Sell Stop is the order when you want to sell below the current price. The reason of using this type of order is to reduce the losses if the market starts to move in the unfavorable direction. If the price touches the sell stop level, it will be automatically executed to prevent further losses. The traders exercise this order when they believe that the price will keep falling in the future.
Sell limit is the order that involves selling the currency at bid price in the future when the current price matches the predetermined price. When the sell limit is placed, the current price of the asset is lower than the predetermined price. These orders are placed when it is assumed that the future price will increase.
Stop Loss and Take Profit
Stop loss is used to reduce the losses when the market starts to move in the unfavorable direction. The position automatically closes with when the price of the currency touches the stop loss level. Similarly, the take profit is used to limit the levels of profit if the price of the currency moves to a specific level. This is used to ensure profits in case if the market suddenly changes its direction.
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