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Different Types of Forex Orders Explained

Different Types of Forex Orders Explained
The forex market is the largest and most volatile on the globe, with a daily trading volume that surpasses $5 trillion. In such market conditions, a risk management system is vital and minimizes your capital loss. Read below which the main types of forex orders are and how much they can help you avoid risks and boost your chances to trading opportunities.

1. The stop-loss order

A stop-loss order represents an order you place with your online broker to exit the trade once a certain price is reached. Designed to limit your loss of capital in one trade, this order is mandatory when participating in the forex market. Some traders refuse to use it because they’re afraid of being stopped only to see the market reversing. Others don’t use it simply because it doesn’t match with their strategy. However, before thinking of the opportunity, forex traders must think of the risks. A stop-loss order not only protects your trade from a huge capital loss, but it also exterminates the emotional factor that can tempt you to overtrade and suffer even greater losses.

2. The limit order

The limit order represents an order you give to your broker to execute a transaction (buy or sell) only at a specified price (the limit) or better. It can be used to buy currencies below the market price or sell currencies above the market price. Overall, the purpose of this type of order is to restrict the risk of a sudden price fluctuation, so it should be incorporated in your risk management system

3. The Market order

A market order represents an order you give to your online forex broker to enter or exit a trade at the best available price, at a specific time. In such a fast-changing market, there can sometimes be a difference between the price when the market order is given and the actual price; consequently, this type of order can lead to a loss or gain of several pips. Make sure you’re using the proper strategy and the market conditions are ideal when you place this order with your broker.

4. The take profit order

The take profit order represents an order you give to your forex broker to close the trade automatically, when it reaches a certain point in the desired direction. Because the price can unexpectedly reverse, you need to set a take profit value to take the profit automatically before it moves in the opposite direction. This order is usually used together with the stop-loss one and the ratio of the amount of take profit pips to the amount of stop-loss pips is known as the risk to reward ratio.

5. The trailing stop order

As opposed to the take profit order, the trailing stop order, also known as the profit protecting stop order, represents an order you give to your forex broker to buy or sell if the currency moves in an unfavorable direction. It is similar to the stop-loss order, but the main difference is that the trailing stop moves as the price moves – allowing you to secure the profits, while also diminishing the potential loss of capital in case the trade doesn’t work out.

The importance of using Forex orders

No matter how much you prepare, how great and elaborated your trading plan is, and how smart is your strategy – the forex market can turn against you in any moment. The broker you choose is also essential, because not all of them provide you with the possibility to place these orders. TradeFW.com is a licensed forex broker that is aware of their importance. Not only it allows you to use the forex orders, but it also offers you a complete trading environment. Some of the safety measures it took are: the segregated accounts, the negative balance protection, the transparent fees, and the possibility to withdraw your money in a fast and stress-free way.

Forex trading is a risky business, but the potential opportunities make it irresistible. These major forex orders are able to help you stop the unpredictable. Even with all the safety measures, the risk to lose it all is still there. “I’m not better than the next trader, just quicker at admitting my mistakes and moving on to the next opportunity”, the famous trader George Soros once said1. Learn something from every position you open and every result you get, great trading opportunities always await for you!

References:

  1. James Deporre, “The ‘Secret’ to a Stock Market Fortune”, Juil, 2018, thestreet.com, https://realmoney.thestreet.com/articles/07/21/2018/secret-stock-market-fortune

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