In your forex trading education, after learning (1) Reading and understanding quotes (2) Pips and valuation of pips and (3) Calculation of profit and loss, next most important topic should be types of orders.

Like stock trading and commodities trading, there are different types of orders in forex currency trading. Proper understanding of types of orders lays the foundation stone for achieving success in forex trading.

If you start online forex trading without an insight into how, when and what types of orders should be placed with your forex trading broker or on the forex trading platform, your entire profit and loss and the balance sheet of online forex trading business can go red.

Orders are basically categorized under two parameters – price and duration:

Orders with Price Variable:

1. Market Orders: This is the most basic and simplest type of order. The order is executed at the current market price. In this order you buy or sell immediately at the best available price. If you are trading through online forex trading software with your high speed broadband internet connection then the order is executed almost instantly.
2. Limit Orders: In limit order you can specify the limit price – upper limit for buy order and lower limit for sell order. Limit order is used by the forex traders for entering a new position or exiting the open position.
3. Stop or Stop-Loss Orders: Stop order is akin to limit order but stop order is used for entry or exit at a price that is pre-determined as per support and resistance levels on the technical chart. Stop orders are essentially used as an effective tool to curtail the losses or for protecting the profit (trailing stop loss). Stop orders are favorites for forex traders who trade aggressively based on the break out on the chart.
4. OCO – Order Cancels Other: In OCO order you place two orders simultaneously. One order is placed above the current price and the other order is placed below the current market price. As soon one order gets executed the other order is cancelled.

Orders with Duration Variable:

1. GTC – Good Till Cancelled: GTC orders can be placed with limit orders or stop orders. The order remains in the forex trading system till it is cancelled by the trader. It is the responsibility of the trader to cancel this order as per his judgment.
2. GTD – Good Till the Day/Date OR GFD – Good for the Day: Unlike GTC orders, GTD orders would remain in the system only till the end of the day.

Summing Up

Most of the forex trading accounts offer you different types of orders with minor variation in terminology. Take full advantage of various types of orders available on the forex trading software. Placing right orders at right time paves the way for an opportune entry and exit from your forex trade. If your entry and exit are not well-timed it may happen that your positive Pips could turn into negative Pips. Moreover it is also quite likely that your wrong order could result into huge losses in few seconds. Keep in mind that ultimately the precise entry and exit points make or break your Pips balance Sheet.

In forex trading jargon margins and leverage imply margin trading or leveraged trading. In reality you can start forex currency trading with a very small amount of capital outlay called as initial margin. Leverage is expressed by ratio and margin is stated in terms of percentage. Forex trading brokers offer leverage ratio starting from 50:1 and it can be as high as 200:1. The same thing when expressed as margin percentage, it can be stated that the margin required is 1% if the leverage ratio is 100:1.

• For example if your forex trading broker asks you to pay 1% margin, then you have to pay 1000$ for buying or selling 1 standard lot size of 100,000 units of any forex pair. Alternatively to put in plain words, you are getting a trading exposure multiple of 100 times on your initial margin.
• All the future markets of stocks, indices and commodities work on leverage or margin. Margin percentage depends upon the market segment, exchange and the broker.
• Forex currency trading markets offer the highest leverage or impose lowest margin requirements. This is the most important advantage of global forex trading business.
• Most of you must be aware about the magic of compounding. Same holds true for margin trading in forex. Let us see an example on what wonders can margin trading or leverage create.

Your analysis and conviction dictates you that EURO will appreciate to a level of 1.5600. In anticipation you buy 1000 EURO/USD at 1.5550. As a matter of fact you have bought 1000 EURO by paying 1555 USD. Your trade turns in your favor and the exchange rate goes up to 1.5600. Immediately you sell 1000 EURO/USD at 1.5600. You have sold your 1000 EURO in exchange for 1560 USD. Let us work out the profit under two different scenarios.

• Without leverage: Profit = 1000 x (1.5600 – 1.5550) = 5 USD. Your return on investment (ROI) is 0.5%.
• With leverage: Let us presume that your forex trading broker has given you a leverage of 100:1 Now with the same investment of 1000$, you are in a position to buy 100,000 EURO/USD. Profit = 100,000 x (1.5600 – 1.5550) = 500 USD. Your ROI is 50%.

Don’t you think that magic of leverage creates wonders? Well, it does, but let me caution you that there are dark sides as well. Suppose if the trade went against you and EURO/USD fell to 1.5500. You will land up with a loss of 5$ without leverage but the loss would be 500$ with leverage. Do you realize the actual implications? You have ended up with a loss of 50% of your capital in just one trade.

Summing Up

• Risk management is an extremely important function in forex trading.
• Risk management and surveillance systems followed by forex trading brokers and forex trading company are different. In case your forex trading position is making huge losses, you may be called upon to jack up your margins. It may happen that in the event of acute volatile market conditions your loss making position would be squared off automatically by the forex trading system.