This article looks at the use of stop orders on the foreign exchange market.
When you trade on the foreign exchange market you need to consider the use of the stop order. The stop order can work for when your trade is making a loss and when your trading is making a profit. You have to consider which stop order you are going to be using on the foreign exchange market and how this affects your trade. There are many brokers that do not allow you to open a trade on the foreign exchange market without having a stop order in place.
What is a Stop Order?
The first point that you have to consider is what a stop order is. A stop order is an order types that works in the opposite way to a limit order. While a limit order will open a trade at a set amount the stop order will close the trade at a set amount. There are two types of stop orders that you should know about and they are the stop loss order and the take profit order.
The stop loss order needs to be used with each trade that you complete. If you do not have this order in place then you could deplete your trading account with a single trade. The losses that you can make on the market will only be limited by the use of a stop loss order. Of course, to get the most out of the order you will have to place the stop loss order at the right location.
The take profit order will exit the market when you have made the profit that you want on the market. The use of the take profit order is important because it will limit the impact of greed on your trading. When you have a take profit order you are able to exit the market with a profit and not keep the trade open until it turns into a losing trade because you want to make a greater profit.
The Triggering of Stop Orders on the Foreign Exchange Market
To trigger the stop order on the foreign exchange market the price movement will need to reach the price where you have set this order. If this price is never reached then the order will never trigger. This does not mean that the order will be on the market forever. When the trade that the stop order is connected to is closed then the stop order will be removed from the market.
The Placement of the Order
The placement of the stop order can seriously impact the trading that you are going to do. If you place the stop order too close to the entry point of your trade then you are not going to make much profit or the order could be triggered before you make a profit. There are a number of ways that you can determine where you should place your stop orders.
Many traders look at the risk management plan that they have to determine where to place the stop order. When you use this plan you ensure that the orders are placed where you are comfortable with the loss or profit that you are making.