What Are The Order Types Used By Forex Traders?

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.

What Are The Order Types Used By Forex Traders? / Nathan Young

Interesting Facts About FOREX

Most experienced traders consider that the best and most profitable of the capital markets is the FOREX market. During many years FOREX trading had been the sole domain of major banks, large financial institutions and countries central banks; for example the U.S. Federal Reserve Bank. But these days, thanks to the internet the market has been opened to everyone willing to learn the best techniques in forex trading and with the intention of making substantial profits as the before mentioned institutions that annually and consistently make pretty high profits from trading in the Foreign Exchange market.

Forex is a market that is continually oscillating and in consequence with good trading opportunities during the whole trading day; this behavior is in part due to the increase in global trade and foreign investments during the last two decades that has made the economics of all countries more dependent upon one another. This means that as a country’s currency fluctuates as a result of economic activity it affects the currency of other countries. For example; economic factors usually affect a currency by altering the interest rate structure and these will either appreciate or devalue the currency of that particular country and reflect the monetary health of its economy.

It is known that some banks allocate as much as 20-30% of their funds into the FOREX market, making 40-60% of all their profits trading currencies. In fact there are experts that consider that banks will cease their loan transactional business in a few years, and better focus on currency trading as their primary revenue source.

The forex market has five major currencies: US Dollar, Japanese Yen, British Pound, Euro and the Swiss Franc. It is due to their great popularity in world’s commerce transactions and its high activity that these five currencies account for over 70% of North American trading. Of course there are other tradable currencies; they include the Canadian, Australian and New Zealand Dollars. These minor currencies account for 4% – 7% of the total market volume. Together, all this five majors and minors currencies constitute the backbone of the FOREX market.

Interesting Facts About FOREX / Nathan Young

The World And The Forex Market

It is possible to day trade currencies along with trading stocks. In case you have ever wondered how the foreign exchange market, or Forex, works, here is an overview of some of the markets basic features:

First and foremost there are the foreign exchange rates, which is the proportional value of two currencies. To be more specific, it’s the required quantity of one particular currency to sell or buy a unit of another currency. There are two methods used to express a foreign exchange rate. The most common method would express the amount of foreign currency that is needed to buy one U.S. dollar. For instance, if a foreign exchange quote expressed as USD/CND at 1.4300, this means that one U.S. dollar can be exchanged for 1.43 Canadian dollars, and vise versa. The second method is when the foreign exchange rate is expressed under the terms that the USD amount can be exchanged for one unit of a foreign currency. For instance, if a quote of CND/USD at 0.6700 means that one Canadian dollar can be exchanged for the same 0.6700 USD. When the USD is not used to convey an exchange rate, then the “cross rate” term is used to convey the proportional values between the two currencies. For instance, if the quote is DEM/SFR at .7000, this means that on German Mark can be exchanged for only .7 Swiss Francs.

Basis points are normally when the foreign exchange rate is expressed by a whole number followed by four decimal points. For example, 0.0001 is called a basis point. Therefore, if an exchange rate rises from 1.4550 to 1.4590, then the currency is said to have changed by 40 basis points.

The Forex market is used to invest in other countries or even to buy foreign products. Sometimes individuals or firms who wish to buy foreign currencies or products, may need to get hold of some of the currency, beforehand, from the country in which they wish to do business with. Also, the exporters may require payment for services or goods in their own currency, or in USD, which is accepted throughout the world.

In the Forex market, a majority of selling and buying of foreign currencies throughout the world is taken place, mostly by the large commercial banks, who are the major traders in the Forex market. With five major institutions based throughout the world in New York, London, Frankfurt, Zurich and Tokyo, the Forex market is considered the largest financial market in the world by far, with the multitude of trading volumes exceeding 1.5 trillion USD on most days.

The foreign exchange spreads are when the exchange rates in the Forex market are cited as a two-tier “bid” or “ask” rate. For instance, when a USD and a DEM is cited as 1.6000/15, the Forex trader who cites this exchange rate is agreeing to buy the DEM’s at 1.6000 and sell them at 1.6015. The “spread” is the actual difference between cites of purchase and cites of sale and also illustrates the profit expected from the transaction for the Forex trader. The “spread” may vary comprehensively on any specific currency; all depending on the currency’s strength or weakness, and even it’s past history or prospective volatility.

Forex traders who consist primarily of world wide network interbank traders are connected together by computers and telephone lines and are constantly negotiating prices among one another. These artful negotiations normally ensue in a market bid, or asking price, for a specific currency that is then introduced continuously into computers to be displayed on official quote screens. When the Forex exchange rates are quoted between banks, this is called “Interbank Rates.”

Many individuals may not be able to get hold of some foreign currencies at Forex rates unless they become licensed traders through Forex. Instead, those individuals may be able to come across foreign currency through a commercial bank, which may charge the individuals with either a commission or a higher spread than those reigning in the Forex market. Sometimes these commercial banks will even charge individuals both commission and higher spread as to enable the bank to make a reasonable profit from the transaction.

The world is big and so is the world of the Forex market.

The World And The Forex Market / David Mclauchlan

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