FX
ORDER TYPES
Online forex trading platforms offer the flexibility to enter a variety of order types that include: Market
Orders Limit
Orders Stop
Orders The traditional "stop-loss" order is used by forex traders to prevent losses in excess of pre-determined acceptable risk levels. Virtually all professional forex traders determine both their accepted targets and risk levels prior to entering each and every trade. For example, if one buys GBP/USD at 1.7480 you could enter a stop-loss order to sell at, say, 1.7460. This would effectively limit potential loss on the position to 20 pips if the price fell. The "trailing stop" is used to lock in desired targets. For example, if one bought GBP/USD at 1.7480 and the price has risen to 1.7520, giving you 40 pips, one may want to lock in a certain amount in case the price falls back down. One would simply place a stop order to sell at, say, 1.7510. This assures that if the price does drop, the position will be closed automatically at 1.7510. If the price keeps increasing, the trader can may move his or her trailing stop. The stop order can also be used to enter into a new position. For example, if the EUR/USD is currently trading at 1.3200 and one believes if the market breaches an expected support-level of 1.3185 that the EUR/USD will continue to fall in price until it reaches a lower support level around, say 1.3150, then you could place a "sell-stop" order at 1.3180. The sell-stop order will trigger an automatic order to sell at the market once the EUR/USD is 1.3180 bid, allowing the anticipated downward price movement. Conversely, if the EUR/USD is currently trading at 1.3200 and one believes if the market breaches an expected resistance-level of 1.3225 that the EUR/USD will continue to rise in price until it reaches a higher resistance level around, say 1.3260, then one could place a "buy-stop" order at 1.3230. The buy-stop order will trigger an automatic order to buy at the market once the EUR/USD is 1.3230 offered, allowing anticipated upward price movement. It is important to note that, by convention, "buy limit" and "sell stop" orders are entered in below the current market price. "Sell limit" and "buy stop" orders are entered in above the current market price.
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