There are several main types of forex orders that brokers can complete: market orders, limit orders, take-profit orders, stop-loss orders, and trailing-stop orders. Your personal investment style will dictate which type of order you will want to use in different circumstances. Here’s a quick guide to understanding the differences between types of forex orders.
A market order becomes an open position that immediately becomes subject to the fluctuations of the market, and is executed directly when placed. The value of your position could deteriorate into an unrealized loss if the rate moves against you, and if you closed the position during a period of unrealized loss, the loss becomes realized and your account balance would be updated with the revised totals.
An order to buy or sell a currency pair is considered a limit order, but only if the conditions as specified in initial trade instructions are fulfilled. Orders are considered pending and do not affect your account balances until conditions are met. This type of order is useful if you want to wait until certain market conditions are met before you execute your order.
Creating an order that automatically closes an open order when an exchange rate meets certain thresholds is considered a take-profit order; this is used to lock certain profit levels when you are unable to monitor open positions. Fast-moving markets may cause a gap between the current trading rate and the rate at which you close, which is unavoidable.
Stop-loss orders are similar to take-profit orders in that they are intended to execute an order once a hard limit is reached. In this case, a stop-loss order causes an order to close immediately if an exchange rate falls below the level you indicate, serving to cap your losses at an acceptable level.
While similar to a stop-loss order, trailing-stop orders close an open order at a level you specify in advance. The benefit of the trailing-stop order is that it follows the general trajectory of the market and automatically adjusts to limit your losses to an acceptable level.
While gold forex trading can still be risky, understanding the difference between the types of orders that you can execute allow you to manage your risks at a level that is acceptable to your risk appetite.
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