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The Trading Process

October 20, 2016
by David Brown
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    • Trading Process

The forex trading platforms allow the traders to execute trades without having to call a forex broker. Once you register with an online forex broker, you will be given access to the forex trading platform using which you have to buy and sell currencies. All the forex brokers provide you with is a free demo account with some predetermined demo cash that you can use to learn to trade. You can use the virtual money to place orders and determine the suitability of the platform. Once you are comfortable, you can use your real account. Traders will have unrestricted access to the demo account using which you can test new trading strategies before applying those in real time. The most common trading platform is the Metatrader 4 and the forex brokers customize this platform for its users by adding a few services and features

    • Understanding different order types

Traders use the trading platforms to instruct the broker to enter and exit trades at desired positions. You may think that you have to push the buy or sell button to buy or sell currencies. While it is simple, it requires you to be glued to your computer watching the movement every single minute. The trading platform allows you to define your trading strategy to automatically execute trades based on predetermined positions. This eliminates unwanted financial risks. To trade successfully, forex traders must know when to trade, how to trade and which order to place.
If you don’t use the extensive types of orders, you may lose through slippage. Slippage refers to the price difference between placement of trade and execution of trade. The market moves very quickly and this slippage can lead to substantial loss. The stop loss orders allow you to limit the risk on the money invested. Losing trades are closed out at pre-determined prices even though you are not available to monitor the trade continuously. In an active market, this stop loss point could be reached within a few seconds of filling the order.

    • Market order

Beginner traders can learn forex trading through the market order as it is the simplest type of trade. You watch the market and place your order at the current market price. The trade results in profit or loss immediately. The market order is executed at ask price if you are buying a currency and it is executed at the bid price if you are selling it.

    • Entry order

As you gain more experience in forex trading, you will understand that you need not always execute trades at the market price. With various analytical tools at your disposal, it is possible to predict the market movement. This will help you to gain more control over your profit or loss. The trade will only be executed if the market price reaches the specified target price. This order can be used for buying and selling currencies.

    • Stop order

The stop order is one of the most popular order types continuously used by traders. With the stop order, you can execute the market order without having to monitor the market movement. You mention the price target and the trade will be executed automatically when the target price is achieved. The loss potential is minimal in this type of order because the order stops once the market price equals the target price. It is beneficial if the market doesn’t move in the predicted direction and goes the other way. You can set the system to either protect your profits or minimize your losses. It can be used to enter a new trade position or exit an already open position. Many traders use stop orders during breakout times. When the market continues to rise, you can keep the long position open by modifying the stop loss order price. If the reverse happens, you can modify the stop buy order to prevent the loss.

    • Limit order

The limit order is one of the types of forex trades useful for fuss-free traders. You don’t have to monitor the market fluctuations if you can predict it with high accuracy. The limit order tells your broker to buy or sell currency at a price pre-determined and stored in the system. The order is only executed when the market price reaches the target price or higher. The limit buy order will be executed at the limit price and limit sell order allows the broker to execute the trade when the market price is the target price or trading at a higher rate. Even though the limit order is similar to a stop loss order, it is slightly different. In the limit sell order, the order price is usually greater than the current price. In the stop loss order, the order price is always below the market price.

    • Additional order types

Depending on the type of forex broker you use, you may be entitled to enjoy a few additional order types. You should always investigate the types of orders offered before choosing a broker.

  • Good for the day GFD order

This GFD order is valid only for a day after which it expires. Even though the deadline for this order is a day, you should consult with your forex broker for the exact time at which the order expires. This will help short term traders to execute trades quickly without having to constantly monitor the market.

  • Good until Cancelled GTC order

The GTC order will expire only if you cancel the trade manually. During volatile market conditions, you should remember that you should intervene to cancel the order. You can establish more control over your order, but you will have a lesser opportunity to change your trade.

  • Order cancels other OCO order

The OCO order is useful for traders who want to minimize losses as much as possible. A combination of limit and stop orders is used so that one of the trades is executed while the other is canceled automatically. This allows you to place two orders above and below the market price. Only one of the two orders will be executed depending on the stop loss and limit prices you have included in the system.
As a forex trader, your aim is to enjoy higher returns on your investment. Understanding and using the different types of orders will help you to have more control over your trades so that you know exactly when the broker will execute the trade. This will keep your emotions at bay when you execute the trades.