When you trade Forex, you will often play a market order. You will click a button and this will help you to get involved. Of course, the market order is what tells the broker that you are interested in taking part. It is also known as the market price, in some instances. It is important to know that there is absolutely no guarantee that you will be getting the price that you see on the order window as most of the time, this is very liquid. A lot of the time however, it will absolutely work out.
Pending orders in a market are essentially instructions. You will give these to your broker when you enter or even exit any given position. Sometimes you will have a more complex platform, and this means that you can have several actions that are all in that same order. When you look at the picture on the most basic level, it’s important to know that you’re looking at the part where you tell the market that you want to get in, or even get out at a set price. If the current market does not actually reach the price, nothing will happen at all. Of course, there are several types of orders, but we are just going to take a look at the ones that you have a higher chance of seeing on the market.
A buy stop means that you really want to purchase a currency at a set price. E.g. if you’re just short of the USD and CAD at 1.31 but you know that you are wrong in the position you are in if the market goes up to 1.3180 then you can place what is known as a buy stop at this moment. This will help you to give your account a good level of protection and it also means that when the market does reach 1.3180, you will buy back at the position. This will close the trade and it also gives you the chance to live another day.
Selling stops are the opposite. If the price is touched and you want to sell the market, then you will need to close out at a set position. Let’s use a GBP and USD pair. Let’s also say that you are really long at 1.30 and you have managed to go up to the 1.33 handle. You do want to lock in some profit here, so you want to place your stop at 1.3270 which is right below. If the market happens to go to this level, then you will sell your position and this will help to flatten out everything.
A buy limit is an order which states that you are willing to purchase any currency pair at a set price or better. One example of this may be that you are looking to purchase the USD and JPY pair at 111.05. This is lower than the market average. If the price drops to this price, you are committing to buying the item at this price. It is more than possible for you to get filled at a much lower price and this is considered to be better. You should however note that this doesn’t usually happen and if it does, it is usually because of a slippage due to a news event. If the price doesn’t take a hit, then nothing at all will happen. You will pay this amount, or you will pay less than this position.
When you look at the opposite of a buy order, you agree to set a price that you are looking at to buy this pair. For example, if you like the look of the EUR and USD pair and this is trading at 1.1358 and you see that the 1.12 level is an area of large resistance then you will be on the list in case it gets to that area. You should note that this is only the case if you are willing to really pay that price. You will put in a sell limit at that price and this means that you get your trade fulfilled at this or you can take full advantage of the far better part of the trade. You should never, ever use market orders if you can help it. Sure, we are all guilty of this, but you will be welcoming slippage if you do. This can cause you a ton of major issues in the future. This is not a serious concern in a lot of instances, but it can happen. Beyond this, if you do slip then there is absolutely no recourse. You can’t call your local broker and complain that it is slipping and expect them to be sympathetic. With an order limit however, you can discuss the problem with them.