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What Are The Order Types Used By Forex Traders?

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During the last decade, Forex trading has become one of the most attractive business opportunities to ever hit people’s interest around the world. Every day people from many walks in life is actively considering entering the profitable world of the currency markets due to its accessibility and trading characteristics.

One of the first things you will do once you decide you want to enter and learn about the forex markets will be to choose your forex broker and then download the free trading platform software from your broker website.

When you first open your trading station software, you will find that there are a number of ways to enter the market or, said in another way, there are a number of ways to place an initial order to buy or sell any currency pair.

One of these types of orders is what is called a Market order; this is an order to buy or sell a currency pair at the market price considering the instant that the order is received and processed (which is usually within seconds of hitting the “OK” button on your trading platform). When a market order is placed, you are simply saying “I’ll buy or sell the currency pair at whatever price it is at when my order gets processed.”

There is a different way to enter the market that is called an Entry order; this is an order to buy or sell a currency pair when it reaches a certain price target; which you should determine by using your knowledge of technical and fundamental indicators. In theory this can be any price. You could set an entry order for the low price of a time period, or the high price of the same time period’; it all depends on your intentions, to sell or to buy. As an example, one usual recommendation is that you should always set an entry order to be the same price as the ‘open price of the time period. When you place an entry order to buy, for example, you are simply saying “I want to buy this currency pair at a given future price and if it never reaches that price, I won’t purchase the pair.”

Stop and Limit orders are two different ways to exit a trade, automatically (i.e., without closing out your position via the click of your mouse or manually), after the trade is entered. And they are widely used as safety locks so you won’t end losing everything in a bad trade. In short, you must always use stops and limits when trading the forex markets.

A stop order is used to stop losses. A limit order (recommended if you can’t monitor your open trade) is used to redeem profits. Where these orders are placed, in relation to your open trade, depends on the direction of the entry order, this is; if you buy or sell.

Remember; a stop order is always placed below the current market value of that currency pair when you are in a long (buy) trade. And a limit order is always placed above the current market value of that currency pair when you are in a long (buy) trade.

December 16, 2010 · Tagged with , , , , , , , , , , , , , , , , , , ,

Forex

Is The FOREX The Market To Trade Your Way to

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Is The FOREX The Market To Trade Your Way to Riches?

Ever watch the news and see the ending FOREX trades of the currency markets? They’re usually based on how individual currencies traded against the pound. FOREX is the abbreviation for the Foreign Exchange market. FOREX is a market where the value of individual currencies from all over the world are traded. The currency market today began in the 1970s as currencies that were historically tied to the gold standard, or the price of gold, were decoupled and allowed to float.

So instead of a pound having a gold based value, it’s value is now determined by the other currencies in the world. FOREX can be an investors paradise as it’s as close to a free trading market as you can get. Almost anyone can invest in FOREX because it’s simply the trading of 1 currency for another.

So how does this work? Let’s say that you believe the United States market is going to be suffering from inflation. That is, the value of the pound, over the next year or so is going to go down….and all 100 pounds of your savings is in US pounds.
One way to trade the FOREX would be to trade your savings in pounds for a currency you believe will be more valuable or stable like the EURO as an example. For this example, let’s say one pound is worth 2 Euros and remember this is an example only. So the trade is 100 US pounds for 200 European EUROS.

Next, let’s say your right and inflation does hit the US hard and the value of the pound drops by 10%. Be aware that when talking about currency we’re talking not about the number of pounds and other currencies but the value of those currencies. That is, what it can buy or it’s actual worth.
So in our example, if you kept your savings in US pounds it would now be worth only 90% of the value it held last year. Because you have your savings in EUROS however and that market has remained stable, the VALUE of your savings has been protected. The reason is that the FOREX trading markets will adjust the value of the pound because of the inflation and raise the value of the Euro appropriately. So in this example, a US pound would be worth about 1.8 Euros.

To complete the example, your savings of 200 EUROS could be traded back into US pounds. Because of the inflation however and the value of the pound went down so you can now trade your 200 EUROS for about 110 US pounds.

Almost anyone can invest in FOREX, and there are strategies for investors who look for long term and short term gains. For those of you who are interested in forex trading, the very first stop is to get some good training and understand the markets. Unlike the private markets where stocks, bonds and commodities are traded, FOREX is currency which belongs to the individual governments. Currency manipulations by governments is not uncommon, while decisions they make can dramatically change the value of their underlying currency.

While many people and currency dealers can make it sound easy, the only thing easy in making any investment is losing your money. It’s important to remember that currency dealers make their money through commissions and usually not on the investment they’re selling. The example we used above, although very simplistic, had a number of risk factors and additional costs we didn’t consider. Things like trading costs, and the assumption that one government held their currency completely stable, which is not usual, while another did not.

Many people involved with FOREX say a lot of money can be made trading currency. They’re correct of course, but you can also lose a lot of money also. So get training, learn the markets and trade smart.

June 10, 2010 · Tagged with , , , , , , , , , , , , , , , , , , ,