Forex Buy And Sell Orders:LImit Orders, Stop Orders, Stop Loss, OCO Orders Explained

Welcome fellow traders, now that we have had a crash course giving you a quick overview of the Forex market with some valuable tips. If you missed the previous instalment, check Forex Basics - Forex Overview and How To Trade Forex. Today, we will take a closer look at buy and sell orders. This Hub is your resource to answer questions such as

1 – What are Buy and Sell Orders in the forex market?

2 – What are Limit Orders?

3 – What are Stop Orders?

4 – What are the rules for placing Forward Orders?

5 – What are OCO’s or Order Cancels Order’s?

6 – How to set Stop Loss and Limit Orders?

In the foreign exchange market (forex market) you buy currencies at the “Ask Price” and you sell currencies at the “Bid Price”. You will see a difference of about 3 to 5 hundredths of a cent between the ask price and the bid price. This 3 to 5 pip spread is the commission that banks and brokers make.

Armed with this knowledge, the theory of making money on the forex market is pretty simple, if you buy a currency at a specific “Ask Price”, the “Bid Price” must go up by over 3 to 5 pips for you to make money.

The foreign exchange market is a highly volatile and extremely fluctuating market that runs 24/7 with only light trading on Saturdays and Sundays. It is virtually impossible to sit and watch your computer screen day and night to catch the perfect time to buy or sell. This is why the tools explained below are simply invaluable. The next sections will explain how you can harness the power of these tools known as orders to work the market for you.

1) Market Order – This is an order to buy or sell at the market price, which is the specific price at the specific time that the order was placed.

2) Limit Order – A Limit Order is an entry or exit order that can be placed below or above the market price. This limit order will be triggered at a future date when the price hits the criteria that you have set. I will go into more detail on this later on in this hub.

3) Stop Order – A Stop Order is an entry or exit that can be placed below or above the market that will be triggered at some future date pretty much like a Limit Order (explained above). Again, I will explain this in further detail later on in this hub.

If you are to place a “Buy Order” above the market price, this is a STOP ORDER.

A “Sell Oder” placed above the market price is a LIMIT ORDER. Makes sense if you think about it because you anticipate the price to drop so you place a “Sell Order” to limit any losses.

A “Buy Order” placed below the market is a LIMIT ORDER because you are essentially waiting for the price to drop so that you can buy.

A “Sell Order” placed below the market is a STOP ORDER

Please keep these rules in mind, as it is very important to know what orders to play on the market.

When you decide to buy, you need to ensure that you place two corresponding sell orders, which are attached to your buy order. One of these “Sell Order’s” need to be placed above the market price (price that you decide to buy). This will act as your LIMIT ORDER, which is the limit that you set for the profit you want to make. The other corresponding “Sell Order” needs to be placed below your market price. This will act as your STOP LOSS ORDER, which will help you to minimise your losses. Forex Brokerage platforms enable you to add these corresponding sell orders to your buy order with only a single click. Furthermore, these two attached sell orders are OCO Orders also known as Order Cancels Order. What this means is that if one of the attached “Sell Orders’” is triggered first, the other “Sell Order” will be automatically cancelled. This enables you to prevent leaving an order that could be triggered on a future date and cause dire consequences.

When you place a “Sell Order”, just like a “Buy Order”, you need to place two corresponding “Buy Order’s”. The “Buy Order” placed above the market sell price will serve as the STOP LOSS as prices still seem to be going up so you might as well ride the wave a bit longer. The “Buy Order” placed below the market sell price will act as the LIMIT ORDER whereby you can determine how much profit you want to make before buying back the currency at a lower price. This is also an example of an OCO or Order Cancels Order (as explained above).

Thank you for taking the time to read this Hub. I hope this has enabled you to better understand the Forex Market. Stay tuned for many more articles that will come your way.

All Success

Afthab

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