Categories Trading

Mechanics of online forex trading

It is best to know how trade is opened at cfd trading South Africa and get to know some basic ways of ensuring that risk is controlled and your funds are well managed. While a majority of the trading software tends to be quite straightforward with the entry orders and the closing and opening of a position, the beginner might be somehow confused by the terms such as trailing stops, stop-loss, or the take profit orders, at least having an understanding which is basic is something important for an account which is properly managed.

A market order

It instructs the broker in selling or buying a currency at the price which is current in the market. Because of that, neither the broker nor the trader has any control over where the trade will be executed. The only commitment which the broker has is of the order being executed within the shortest time possible which in most cases is instant. You need to remember that, in times of the turmoil of the market, spreads can greatly widen, and the price which a market order happens to be executed can be quite shocking to the trader who is still a newbie in the market. At the same time, it is good that the market orders are avoided during such periods.

Limit order

In contrast, it is what instructs the broker in executing a trader only after a particular price value is arrived at. There is no action that is going to take place until the price quote gets reached, regardless of the time frame. Its disadvantage is that, the market might never move in the direction that you desire it to, and the trade might never be executed because of that. Alternatively, the limit order facilitates planning which is quite better, reducing arbitrariness in the decisions of trading, and eliminating the changes which are associated with the sudden spikes in prices to the greatest possible extent.

Stop-loss order

It is a kind of mechanism which is safe which places a ceiling over the losses which a trade which is misplaced can cause. By having to enter a stop-loss order, you will have to specify the maximum amount of the losses which are unrealized that you are ready to tolerate, beyond which your confidence in the trading will not be maintained. Naturally, it needs to be set in the opposite direction to where you expect the price quote to be moving. The stop loss execution needs to be set in the direction which is opposite to where you expect the price quote to move. The stop-loss execution order as with the sell orders or limit buy happens automatically.

Trailing stop order

It is an order type which is quite uncommon. In such a case, the stop loss order gets renewed automatically by the software for trading at specified intervals by the trader.

Take profit order

It is one which specifies the price quote which you would like your position to be closed, making profits to be realized.