In this faced-paced forex business today, traders across the world are widely attracted due to its high profit generating feature, that too from one’s comfort zone. But the beginners should also be aware that there are equal chances of risks. Money and risk managements are the two important factors determining your success.
However, for managing your risks and putting ahead strategic steps, there are different approaches, one of which is forex limit order. This order is used to either purchase or sell currencies, where a trader specifies a value that is required to execute a trade.
Forex limit order:
Let’s go on simply. There are two types of forex limit orders – one is while entering a trade and other is when closing one.
Entry limit order
In a situation, when you are confident that market price can take a turn after reaching a certain point, you can use entry limit order. Now as buying and selling a concept is involved, so, your set limit order should be below existing market price level for buy orders. Again for sell orders, it should be placed exceeding current value.
Close limit order
Limit order in forex is also placed when a trader wants to close an opened position. If you want to exit a trade at a point when market moves to a specific amount, which again is profitable for your position, you have to set a limit order there.
Examples can better help I guess! Check out here
Take a currency pair of USD/EUR.
For entering a trade
If this currency pair is presently trading at 1.3800. Reading the technical analysis, you assume that trade would decline to a level of 1.3750. Then you have to set your limit order for buying at 1.3750 levels.
Again if current trading value is at 1.3798 level and your assumption says, this price would rally till 1.3850 level, then set your forex sell order at a level of 1.3850.
For closing a trade
If you purchase this pair at 1.3800 and wish to close your account when your trade fulfills a profit of 100 pips, then you need to set your sell limit order at 1.3900 level above your entry point.
If you sell this pair at 1.3798 and now wish to close your account when there’s a profit of 100 pips, set the order of buy limit at 1.3698 below your entry point.
Hence, to make a simple conclusion, a buy limit order is set below the current market price. A sell limit order is set above this current market price.
But this brings us to another order - forex stop order.
A stop order in forex is used as protective orders – to open an account based on trade breakouts and close a trade when value seems to go against your position. For buying stop orders, it should be placed at a level above current trade value and for selling stop orders; it should be below current trading value. This is how stop orders forex are used.
One suggestion – There are other such orders like forex stop loss order and take profit order, all of which are used to manage risks of loss strategically. Ensure that you have a clear understanding of all these terms before entering into the real world.
Good Luck for your forex trading!