Friday, 21 June 2013
Wednesday, 19 June 2013
Four Main Types of Orders in Forex Market
Four Main Types of Orders in Forex Market
There are many kinds of orders which
traders can place to transact in the Forex market, for making profit
out of it.
- Market Order
The market order is
the most simple and common kind or order. Here, the trader buys and
sells the currency at the rate prevailing in the market at the time
of placing the order. Due to the huge size of the market and the high
volatility, trends can reverse any instant, so people prefer placing
orders at the market price to guard themselves against any adverse
trend.
- Limit order
In this case, the
trader specifies a price at which he may wish to buy or sell the
currency. Suppose a trader has bought GBP against the USD at 1.9710,
then he can place a sell order at 1.9725, when the exchange will
execute the order and he will profit from it. The order will get
cancelled if the target price is not achieved during the day.
- Stop loss order
Due to the
volatility, stop losses are essential. They determine the maximum
loss a trader is willing to suffer. Suppose in the above instance,
the risk-taking ability of the trader is low, then he may place a
stop loss at 1.9705, at which level the exchange will book losses for
him, and he won’t be affected by any fall below 1.9705.
- Entry order
Such an order is
filled only when certain conditions are met in the market, which the
order specifies. The entry order can be a limit entry order or even a
stop entry order.
- Limit entry order
As an example,
let’s assume that the current market price for GBP/USD is
1.9705-10. This implies that the trader can transact at these levels.
Here, a trader can put a limit entry order to sell his holdings at a
price more than the market price, say, 1.9715. His order would be
executed only if that price is attained. In the similar manner, he
can place an order for buying at a level of, say 1.9700, and his
‘buy’ order would remain pending till the price falls to that
level.
- Stop entry order
Such an order is
generally used when the trader has sufficient grounds to believe that
the currency is trading in a fixed range and believes that it is on
the verge of a breakout from that range. He might want to buy at a
price higher than the market price or sell at a lower price than the
market price. In the same example, the trader may go ahead and buy at
1.9720 or sell at 1.9690, where he believes that once these levels
are attained, the currency will only go up or fall further, as the
case may be. A trader exercises the stop entry order only when a
trader has reasonable grounds to believe that there will be sharp
movements in the currency rates in the Forex market.
Importance of Forex trading
Importance of Forex trading
Foreign Exchange [Forex] involves
exchanging of different foreign currencies for a profit. The reason
for buying the currency of another country may be the need to buy
some commodity of the said country as well, besides making money
through the difference in exchange rates.
In the latter case, people buy currency
of a foreign country when the rate in the market is low, and sell it
off when the rates go up. Currency trading is usually done between
the central banks, the government, speculators and MNCs. Nations
cannot trade with each other without the presence of a foreign
market.
A huge amount of money is daily traded
in the Forex market, though the amount invested by an individual
trader may be very low. No one individually can have any influence on
the Forex fluctuations, not even the government. So it can easily be
concluded that the level of the currency reflects the strength or the
weakness of the economy of a country. So this makes the Forex market
a good place for competition.
The government and the central bank do
try to stabilize the currency of their country by speculating, by
buying and selling currencies at appropriate times. So they can
influence the market if they conduct a trade in huge volumes, though.
To buy its own currency, however, the government or the central bank
must have huge reserves of foreign currency with them. So it is
virtually impossible to inflate the currency value artificially.
Banks trade a lot in foreign currencies
and this forms a chunk of the volume in the Forex market. They buy
currencies not only as individual bodies, but also on behalf of their
clients. They trade in lots of futures. Till a few years back, the
brokers could influence the volumes of trading in the Forex market.
But due to the electronic services available now, the services of
brokers is not required. It’s easy to operate electronically.
Trading with international countries is
possible only with the existence of Forex markets. When there is no
Forex market, there is no common currency between two countries, so
one cannot evaluate the value of one currency with respect to the
other.
The buyer pays the seller in the
former’s currency. With the money so received, the seller buys
goods in the buyer’s country and sells those goods in his [seller]
country.
Only then he is able to know how much
he has earned through the export. In the presence of a Forex market,
though, it is very easy for a seller to know of his earnings at the
very instant that he conducts an export trade. In the same manner,
the buyer too will have a thorough knowledge of the cost he will have
to incur to buy goods from an international country.
What is Forex Trading?
Forex trading involves dealing in
international currencies. Here, one can sell currency of one country
to buy that of another. The trader deals in Foreign Exchange [Forex]
at the most appropriate time to profit from the transaction. Good
ability to forecast plays a vital role here. One may wonder how Forex
trading can be such a lucrative earning opportunity since
fluctuations in exchange is so little.
But remember, when done in big volumes,
a minor change can mean a lot. There are many non-monetary advantages
to it as well. Anyone who wants to deal in Forex can do so, since
only the basic knowledge is required for it.
Forex can help you earn a lot of money.
But there are certain conditions to follow before trading in Forex.
Firstly, one must have a thorough knowledge about the trends in the
stock market, the basics of trading and risk-taking ability. You will
get all the help you need for attaining these conditions very easily.
There are many sites on the internet
which can help you clarify your basics and help you brave rough
weather. A good reason why Forex trading can be considered is the
fact that there are frequent fluctuations in currencies, though in
percentage terms it may be small.
You gain if the fluctuation favors you
and the reverse holds true as well. No one can accurately predict the
trend of the currencies. Liquidity is another reason why Forex
trading is so popular.
Now the most important part – in
Forex, you can make huge sums of money even if your initial
investment is on a lower side. You can invest as little as $50,000.
Rich people have no upper cap to the amount of investment. So
remember that even with a nominal investment, the earning ability is
undoubtedly very huge.
Most of the great businesses are
connected to the world of internet today, and Forex trading is no
exception. You can deal in foreign currencies right from your home.
In fact, it is fully conducted online. You have the liberty to choose
when you want to trade, and you don’t need to meet any deadlines.
Basically, you can be your own boss.
The process of online trading is fairly simple for anyone to
understand. You just need to open an account for Forex trading with a
recognized broker and
they will complete the rest of the
formalities. The only bit you need to do is get ready with your
investment amount.
So, it is thus clear that Forex trading
can be one of the best businesses to earn money. Though there is a
level of risk attached to it, but it can be avoided with due care and
an alert mind!
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