15 LESSON OF FOREX

LESSON #9:
FOREX Order Types and How to Use Them

When you open your trading station software (provided to you for free by any one of our recommended brokers), you will find there are TWO main ways to ENTER a market or, said in another way, there are two ways to place an initial order to buy or sell any currency pair.

(AFTER we discuss the MARKET and ENTRY order, we'll cover how to protect your profits and limit any potential or realized losses with the STOP and LIMIT order).

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MARKET ORDER - an order to buy or sell a currency pair at the market price the instant that the order is received and processed (within seconds of hitting the "OK" button on your screen). When a market order is placed, you are simply saying "I'll buy or sell the currency pair at whatever price it is at when my order gets processed."

Example: If you are looking to place an order for JPY (YEN) when the dealing price is 104.00/05, a market order will request to buy JPY at 104.00 or will request to sell JPY at 104.05 (of course, whether you BUY it or SELL it is up to you and is chosen on the software drop down box. And, again, once you've made your selection, this order is placed with a single click and is executed almost instantly).

Within the courses we have for sale at RapidForex.com, 99% of the time, we will have you avoiding MARKET orders. The reason? They tend to compel the trader to act on impulse instead of according to a trading plan.

ENTRY ORDER - an order to buy or sell a currency pair when it reaches a certain price target. This can be any price in theory. You could set an entry order for the low price of a time period, or the high price of a time period. For instance, in one of our courses (Rapid Forex Education Manual 9.0) we teach you to always set an ENTRY order to be the same price as the *open price* of the time period. When you place an ENTRY order to BUY, for example, you are simply saying "I want to buy this currency pair at a certain price, if it never reaches that price, I don't want to purchase the pair."

Example: the current "real-time" quote for the EUR/USD is 1.3317. Your analysis shows that IF the pair hits 1.3329 (a key resistance point) that there's a high-probability the pair will turnaround (retrace down) so you decide to place an ENTRY order to sell the EUR/USD at 1.3327.

The ENTRY order above shows you how you are fully-empowered to pick a price and place an order to sell at that price. If the market hits 1.3327 ... great, you now have an OPEN position and, as long as the EUR/USD pair keeps dropping and you close out (exit) your trade at a price lower than 1.3327, you make money.

And, if you don't get in the trade, via your ENTRY order, don't worry. New trades are constantly developing and if your order entry doesn't get filled you can't lose any money. Learn not to be upset when an ENTRY order isn't filled. You are saved most of the time anyway because the currency pair did the opposite of what you thought and you would have lost money, most likely, if it did get filled. Remember, when orders are not filled, it means you never risked any money!

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After your ENTRY order is placed, you can set a STOP and/or LIMIT order if you desire. STOP and LIMIT orders are both ways to exit a trade, automatically (i.e., without closing out your position via the click of your mouse - manually), after the trade is entered.

A STOP order (something we always recommend) is used to stop losses. A LIMIT order (recommended if you can't monitor your open trade) is used to redeem profits. Where these orders are placed, in relation to your open trade, depends on the direction of the entry order.

Example STOP order: If you have an open buy position on USD/JPY, which you bought at 104.20, and you want to set a stop order in case the U.S. Dollar starts to depreciate against the YEN, to stop your loss (or limit your loss - however you want to look at it), you could set a stop order at 104.00, thus closing your position at a 20-pip loss.

Tip: a STOP order is always placed BELOW the current market value of that currency pair (if you are in a long trade).

Example LIMIT order: Assume you placed an ENTRY order to BUY EUR/USD for 1.6100. You might place the STOP order at 1.6081 (limiting your loss to 19 pips) but, at the same time, you could place a LIMIT order for somewhere around 1.6171. If the currency pair reaches that price level, the LIMIT order becomes a market order to sell, or close out, the BUY position for a 71-pip profit.

Tip: a LIMIT order is always placed ABOVE the current market value of that currency pair (if you are in a long trade).

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This is all you really need to know in terms of placing orders. It's really not that complicated and, of course, our courses will walk you through the finer points of calculating your entry and exit points and ensuring you know how to scale in and out of trades with ease and precision.

If you've ever traded ONLINE before, maybe using e-Trade or a stock brokers online software package, you will be pleasantly surprised at just how intuitive, fun, and easy it is to use the desktop-based online software that a reputable FX broker can provide you.