Wednesday, January 14, 2009

Forex Trading Education - Basic Types of Orders

As with anything educational we must make it fun! At least I feel it's my duty to keep you entertained while feeding your brain with information so I'll do my best, scouts honor. I actually failed the knot tying portion of my boy scouts training; don't laugh it was hard business.

So before getting into the actual types you should understand what an "order" is; not that it's complicated, it's simply how you enter or exit a trade. I realize it was pretty self-explanatory but I felt it needed to be said just in case there were some new traders out there; much love to all of you.

A "market order" is when you choose to buy or sell at the current price. Like if EUR/USD is currently trading @ 1.5233 you would click buy and your fancy trading platform would instantly send a buy order at that exact price. It's essentially 1-click ordering similar to Amazon; the difference being you're buying/selling one currency against another instead of purchasing the box set of "The Best of the Muppet Show" on DVD (come on now; who doesn't love the Muppets?).

Next we have a "limit order" which is when you set it up so you buy or sell at a certain price. For example if EUR/USD is current trading at 1.5233 and you want to buy it when it reaches 1.5253 you could sit in front of your computer and monitor it and perform a market order or you can set a limit order at 1.5253 and go live the rest of your life (maybe clean out the garage, you know the one that your wife keeps telling you to clean? Hah, who am I trying to fool? We're never doing that).

The final basic order type is known as a "stop-loss" (and no, it has nothing to do with the new film with Ryan Phillippe). A stop-loss order is basically a limit order linked to an open trade to prevent additional losses if price goes against you. A stop-loss order will stay enabled until the position is liquidated or you manually cancel it. For example let's say you bought EUR/USD @ 1.5233, to limit your max loss you setup a stop-loss order @ 1.5203. So if you were wrong and for some reason EUR/USD drops to 1.5203 instead of moving up, your platform will automatically sell @ 1.5203 and close your position for a 30 pip loss (ouch). These are extremely useful if you don't want to sit on the PC (not physically sit on it; I think you knew that I just wanted to make it clear) and monitor all day long.

There you have it but remember those are just the basics, there are more out there. This Forex trading stuff is complicated business when you're going solo, that's why most people use a Forex trading system. If you're interested in a trading system click here for reviews of the top 3 sellers: http://forex-tracer.the-perfect-solution.com/.

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