There are many kinds of orders which traders can place to transact in the Forex market, for making profit out of it.
1. Market Order
The market order is the most
simple and common kind or order.
Here, the trader buys and sells the currency at the rate prevailing in the market at the time of placing the order.
Here, the trader buys and sells the currency at the rate prevailing in the market at the time of placing the order.
Due to
the huge size of the market and the high volatility, trends can reverse any
instant, so people prefer placing orders at the market price to guard
themselves against any adverse trend.
2. Limit order
2. Limit order
In this case, the trader
specifies a price at which he may wish to buy or sell the currency.
Suppose a trader has bought GBP against the USD at 1.9710, then he can place a sell order at 1.9725, when the exchange will execute the order and he will profit from it.
Suppose a trader has bought GBP against the USD at 1.9710, then he can place a sell order at 1.9725, when the exchange will execute the order and he will profit from it.
The order will get cancelled if the target price is not achieved during the
day.
3. Stop loss order
3. Stop loss order
Due to the volatility, stop
losses are essential. They determine the maximum loss a trader is willing to
suffer.
Suppose in the above instance, the risk-taking ability of the trader is low, then he may place a stop loss at 1.9705, at which level the exchange will book losses for him, and he won’t be affected by any fall below 1.9705.
4. Entry
order
Such an order is filled only when
certain conditions are met in the market, which the order specifies. The entry
order can be a limit entry order or even a stop entry order.
5. Limit entry order
As an example, let’s assume that
the current market price for GBP/USD is 1.9705-10.
This implies that the trader can transact at these levels.
Here, a trader can put a limit entry order to sell his holdings at a price more than the market price, say, 1.9715.
This implies that the trader can transact at these levels.
Here, a trader can put a limit entry order to sell his holdings at a price more than the market price, say, 1.9715.
His order
would be executed only if that price is attained. In the similar manner, he can
place an order for buying at a level of, say 1.9700, and his ‘buy’ order would
remain pending till the price falls to that level.
6. Stop entry order
6. Stop entry order
Such an order is generally used
when the trader has sufficient grounds to believe that the currency is trading
in a fixed range and believes that it is on the verge of a breakout from that
range.
He might want to buy at a price higher than the market price or sell at
a lower price than the market price.
In the same example, the trader may go
ahead and buy at 1.9720 or sell at 1.9690, where he believes that once these
levels are attained, the currency will only go up or fall further, as the case
may be.
A trader exercises the stop entry order only when a trader has
reasonable grounds to believe that there will be sharp movements in the
currency rates in the Forex market.
