Forex Orders for Beginners
Every trader will need to place an order to enter a Forex trade. This order will determine your trading position, your level of risk in the trade, and your potential of profit. Yes, orders are very important. Orders are not difficult – rather, they don’t need to be difficult.
The trader needs to become familiar with the different types of orders available as well as their advantages and disadvantages. Taking time to learn about the different types of orders will help the trader to enter the best trade possible and protect himself from unnecessary risks.
The basic rule for beginners is to keep it simple. Don’t get fancy with different types of orders. Don’t set parameters that you don’t really understand or need for the trade. Make your orders straightforward, clear, and consistent.
Your trading system will have certain parameters for placing an order. While you should follow your trading system, you should take the advice in the previous paragraph. Keep your order simple. (If your trading system promotes complex types of orders without explaining how to use them or the advantages of using them, consider getting a new trading system.)
Below are the basic types of Forex orders.
- Market Orders
A market order is an entry order to buy or sell the currency at the current price. Prices change very quickly in the Forex market so you must be willing to accept a slightly different (possibly higher) price than the one listed on your [linl url=http://forextrading.about.com/od/findingabroker/a/services_ro.htm] trading platform[/link]. The advantage of using a market order is that your order is guaranteed to be filled quickly. Therefore, you can rest assured that you have entered the trade of your choice.
This is the basic order that is recommended for beginning traders.
- Limit Orders
A limit order is an order to sell at a certain price to close a long position or buy at a certain price to close a short position . In other words, the limit order closes the trade. It is not an entry order like the market order above. Closing the order allows the trader to secure a specified maximum profit on a particular trade. For this reason, a limit order could also be called a “Take Profit” order.
Limit orders are highly recommended for beginning traders and those unable to monitor their open positions because it locks in profits, closes the trade, and makes more funds available for other trades.
- Stop-Loss Orders
A stop-loss order is linked to a particular position (or trade) for the purpose of preventing the position from accruing additional losses. A stop-loss order does not secure a profit. Rather it limits losses. Stop-loss orders are highly recommended for all traders as a prudent risk management tool.
Special care should be taken to place the stop-loss order at the proper price. A stop-loss that has been placed too broadly (a common mistake made by beginners) will allow excessive losses to accumulate. A stop-loss order that has been placed too narrowly will not allow the currency to backtrack or retrace. This can cause a trade to be closed prematurely.
Orders are a very important part of placing a trade. Every trading platform is different. The names of the orders are different. It is essential for the trader to be familiar with the different types of orders prior to placing any trade. Paper trading is an excellent way to learn about the different types of orders and practice using them in a real-time setting.
