There are a variety of ways in which traders can place instructions to buy and sell currencies and this gives foreign exchange traders substantial flexibility in planning their trading strategies and allows them to both maximize their profits and minimize their losses.
The simplest appearance of order is the market order in which the trader just buys or sells a currency pair at the current market price. Because of the huge size of the market and its high liquidity there is little if any delay or slippage in the market and market instructions are in essence guaranteed.
A limit order allows the trader to set the price at which he wants to take his profit and close out his position. For example where a trader has bought GBP/USD at 1.9450 he might place a limit order at 1.9465 so that if the price rises to this level his position would automatically be stopped up and he will take his profit.
A stop loss order is an additional form of limit order but in this case it indicates the most loss which a trader is ready to take. In our example above the trader could place a stop loss order at 1.9430 so that he would limit his losses to 20 if the market turned against him.
See Also: Foreign Exchange Market In India
An entrance orders is an order which is only filled when the market meets convinced conditions which are specific in the order. An entry order can take the form of either a limit entry order or a stop entry order.
Let’s begin by assuming that the market price for the GBP/USD is 1.9740-45. These earnings that a trader can enter the market to sell at 1.9740 or buy at 1.9745. A trader could place a limit entrance order to sell above the current market price at a level of say 1.9750 and this order would then only be executed if the market price reached this point. Likewise he can place an order to buy at a price under the current market price - in this case below the buying price of 1.9745. So was the trader to place a limit entry order to buy at 1.9730 this order would only come into effect if the price dropped to this point. A limit entry order is normally used where a trader believes that a currency is trading within an upper and lower range and is expecting a reversal in the currency's price movement.
A stop entrance order is normally used when a trader believes that a currency which has been trading within an upper and lower range is about to break out of that range and he needs to either buy at a value above the present market value or to sell at a price below the current market value.
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