November 17, 2020 | AtoZ Markets – As you start trading forex, you mostly play the so-called ‘market order’ to get involved. What you have to do is click the button to buy or sell and get involved. Also, the market order tells the broker that you wish to get involved in the best price possible or known as the ‘market price.’ Though there is no guarantee that you can have the price on the chart or order window, forex is still extraordinarily liquid; most of the time, it works out.
The pending orders, not just in forex but in any market, are a set of instructions that traders provide to their brokers on entering or exiting a position. In some more complex platforms, they could have multiple actions in the same order. Then, at the basic level, they are looking for a case where they tell the market they want to get in or out of a position at a specific price. If the market does not meet the price, nothing will happen. There are multiple kinds of orders, but we’ll tackle the most common.
A buy stop informs the broker of traders wants to buy a currency pair at a specific price. For instance, if a trader is short of the USD/CAD pair at 1.31, but the trader realized that he/she is wrong in the position if the market reaches the 1.3180 level, the trader places a but stop at that level to protect the account. Thus, as soon as the market reaches 1.3180, the trader will buy back the position to close out the trade and gear up for another one.
On the other hand, sell stops are the exact opposite. If it reached a price, traders wish to sell the market, typically to close out a position. Let’s say traders went long at 1.30, and the price traveled to 1.33 handle. Traders would want to lock in some profits, so they decide to place a sell stop at 1.3270 just below. Then, if the market goes back to the 1.3270 level, traders sell their position and flatten out the account – as far as the trade is concerned.
Traders use a buy limit to order that they are willing to buy a currency pair at a specific price or better. For instance, you want to buy the USD/JPY pair at ¥111.05, lower than the market price. As the market falls to the ¥111.05, you will only buy it at a specific price or better. Though there is a chance to get filled at a lower price since it is considered better, it rarely happens. Most of the time, it only occurs when there is a lot of slippage during the news event. If it did not hit the price, nothing happens. Traders will either pay ¥111.05 or less for the position.
Sell limit is the opposite of but limit order. Here, traders are setting a specific price that they are looking to sell the currency pair. Let’s say the EUR/USD pair is trading at the 1.1358 level, and traders notice that the 1.12 level above is an area of resistance. So, they would want to short the market if it gets up in that area, and they are only willing to pay that price. Most likely, traders will put in a sell limit at that level. Then, they either get their trade filled at that price or higher to take advantage of the trade’s better part.