Entry Limit Orders - forex trading app best

Entry Limit Orders ~ forex trading app best

Entry Limit Orders

An entry limit order is an order for a currency pair that is away from your broker’s bid/ask price. In other words, your limit order to buy is not your broker’s ask price, or your order to sell is not your broker’s bid price.

Your order does not compete with any other orders. Only your broker sees your order—no one else. So there is little point in trying to place an order inside the spread, where the transaction price—either a buy or a sell—is between the bid/ask price. Many trading platforms do not even allow such an order to be entered, but even if they did, the broker probably won’t complete the transaction unless the market moves enough in the direction of your order.

There are some forex brokers who are advertising a no dealing desk, where your order is shown to some banks that are in the broker’s network, and, in these cases, the trading platform does allow you to place an entry limit order inside the spread, but even this is not really effective, because only a few big banks see your order, and if it is a small order, they probably won’t have much interest. This is in contrast to an American stock exchange, where the best bid/ask prices from all participants is displayed in the system, allowing just about anybody to see those stock prices.

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Understanding Forex Orders - forex trading app android

Understanding Forex Orders ~ forex trading app android

Understanding Forex Orders

One thing that you must understand about orders is that when you buy or sell short, you are simply exchanging 1 currency for another. For instance, consider the Euro/dollar currency pair, which is expressed as EUR/USD. (Short tutorial: Currency Quotes) EUR is the base currency and USD is the quote currency. Since this is the most actively traded currency pair, most brokers allow you to trade it. When you buy EUR/USD, you are exchanging Euros for United States dollars, and when you sell this pair, you are doing the opposite—exchanging dollars for Euros. Note that buying EUR/USD is the same as selling USD/EUR, and vice versa. (You do not have to worry about having Euros in your account to buy dollars—the broker will take care of this for you automatically.)

Stop-Loss Orders

It is very difficult to predict currency prices, and so, to prevent major losses, stop-loss orders are set to close a transaction when the losses reach a certain limit. Because stop-loss orders are placed to prevent more losses, they are set on the other side of the limit order to take profits. Thus, a stop-loss order for a purchase transaction is set below the purchase price, and a stop-loss order for a sell short transaction is set above the sell price.

Because of the spread, a stop-loss order for a purchase transaction must be placed below the dealer’s bid quote, which is lower than your purchase price at the time of the transaction. In fact, it should be placed low enough that the random walk of market prices will not trigger your stop-loss order before your limit order. Many traders try to avoid this by not setting a stop-loss order, but this is a mistake. The market could move counter to your expectations for a long time or by a large amount, resulting in very large losses, which are magnified by whatever leverage you are using.

Since currency prices are so unpredictable, it is wise, and most trading platforms allow it, to set both limit and stop-loss orders with the initial order, whether it be a market or an entry limit order.

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Market Orders - best forex trading app android

Market Orders ~ best forex trading app android

Market Orders

The most common order is the market order, which is to buy or sell at market. Actually, what this means is that you are buying the quote currency at the brokers ask price or you are selling short at the brokers bid price, which is always lower than the ask price. This is how most brokers make their money, and why they do not need to charge commissions. The spread is the difference between the bid and ask prices. In most cases, the most actively traded pairs will have the smallest spreads, and less actively traded currency pairs will have larger spreads. Spreads also increase when there is increased volatility in the market, even for frequently traded currency pairs.

As soon as you buy or sell short, the spread is immediately subtracted from your equity, because if you immediately closed the transaction even before there are any price changes, then you will lose the amount of the spread.

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