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  • In this lesson, we will learn how to avoid potentially steep losses and to buy or sell a currency pair at attractive prices. For this, you have three types of orders at your disposal namely; a Market Order, a Limit Order, and a Stop Order. What follows is a definition of what an “order” is and description of these three most popular order types available in Forex trading.

    What Is a Forex Order?

    A Forex order is a term that refers to how you will enter or exit a trade. Orders are trading tools needed in the Forex market. So learning what these Forex orders mean and how they are used can go a long way toward successful trading.

    Market Order:

    This is the most common order type in Forex market. It is executed at the best possible price available at the time the order is sent. It is called a market order because it's an order to buy or sell currencies at the current market price. This type of order is executed immediately since it does not specify a price.

    Limit Order:

    Unlike the market order, the limit order is placed to buy or sell at a certain price. It represents an order that opens a position at more favorable levels than the prevailing market price. If you’d like to buy below or sell above the current market price, a limit order would be the right type of order to use.

    Stop Order:

    Just like the limit order, a stop entry order is placed to buy above the market or sell below the market at a certain price. However, there are two types of Stop Orders:

    1

    Protective stop order (Stop - Loss) –

    This is used to limit the amount of loss on an open trading position; it instantly closes a trade at a designated level of loss when the market moves against you. While stop losses can be painful when they're hit, they are critical to trading survival.

    2

    Stop order to enter into the market –

    his is typically used for trading breakouts. For instance, if you think a rising EUR/USD will continue the upward move, you would place a Buy stop order above the current price. It will be executed only when the price rallies above the stop price. It is vice-versa in the case of sell stops. Stop Orders can turn into Market Orders when the market trades at that price.

    Keep in mind:

    • Both Stop Orders and Market Orders are subject to slippage, while Limit Orders are not.

    • Always trade with stop-loss orders since they are the ultimate risk-limiting tools. Without them, traders are exposed to virtually unlimited risk.

    • All successful traders have lost money at one time or the other. Though painful, losses can be acceptable if they are kept relatively small in the first place.

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