You need to know how to appropriately place orders with your brokers. This will avoid any misunderstandings regarding your entry and exit strategies. It is important that you place orders according to your trading method.
Market Orders
Market orders are the most common type. It is used if you want to place the order at the market price at that precise moment. The market price is the ask or the bid price that you see on your screen. It is possible to use this type of order to either enter or exit a position.
Limit Orders
A limit order is used if you only wish to enter a new position or leave a current position at a stipulated price. Your order will be completed once the trades reach the specified price or a better price. A buy-limit order issues an instruction that a currency pair is to be bought when your specified price is reached and that price is lower than the market price currently. A sell-limit order instructs the sale of your currency pair at the price on the market once it has reached the price you specified or a higher market price.
Prior to placing a trade, you must have a plan as to how far you wish to go for profits should that specific trade be in your favor. This type of order gives you the opportunity to leave the market once you have reached your objective.
Stop Orders
A stop order is held until a price specified by you has been reached. This is when it becomes a market order. It is used to exit an existing position, or to enter a new one. A stop order to buy is when you specify the purchase of your currency pair once the market price has reached the price you have specified or higher. A stop order to sell is when you specify that your currency pair should be sold once the market price reaches the price you specified or lower.
It is possible for you to limit losses with stop orders. You will go through periods when you encounter losses, but the important factor is to limit the size of the losses you experience. Before you commence a trade, you must have a plan as to your point of exit if the market turns against you. An effective method to use to overcome this problem and limit your losses is to implement a predetermined order stop point. This is called a ‘stop-loss.’
You can also use stop orders to protect any profits you make. If your trade has become profitable, you have the opportunity to move the ‘stop-loss’ that you placed, into a direction that will retain the momentum of profitability.
You should ensure that you have a firm grasp of the various types of orders that are available through your brokerage. This knowledge will allow you to use the correct tools to reach your objectives and determine clear pre-determined points of entry and exit for all your trades. There are other types of orders available, but limit, market and stop orders are the ones most often used.
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