Forex Trading

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Placing Orders

To take advantage of perceived market movements, you place an order to either short or long a currency pair . This opens a new position (or trade) that can later be closed to either take profit or stop loss. Orders can be closed manually at any time, or automatically by a stop-loss or take-profit order.

 

Types of Orders for New Positions

There are two types of orders you can place to open new positions (trades):

  • Market orders open a position immediately at the current market rate.

  • Limit orders open a position at some point in the future should a currency pair reach a specified threshold. There's a specified expiry date when, if the threshold wasn't reached, the order is closed and no position is opened.

Specify Lower and Upper Bounds to Reduce Market Fluctuation Risk

The most current rates maintained at the OANDA servers are used when orders are executed. Because of the continuously changing nature of exchange rates, these rates may be higher or lower than expected.

For example, the rate of execution may not be the same as the rate shown at the time you placed a market order, or the threshold amount you specified when you placed a limit order. (A limit order is triggered when the exchange rate crosses its threshold, but there's a mechanical time lag before the order is actually executed.)

The FXTrade platform lets you optionally specify lower and upper bounds when you place a market order in the Buy/Sell Market Order window. The order will then be executed only if the exchange rate to be applied is equal to or higher than the lower bound, if specified (or equal to or lower than the upper bound, if specified).

If the most current exchange rate at the OANDA servers lies outside the range specified by the lower and upper bounds, then the order is closed with no action being taken.

React to the Market 24/7 with Stop-Loss or Take-Profit Orders

You can place orders on open trades so they are automatically closed if certain market conditions occur, even if you are not logged onto the trading platform. These orders let you take advantage of positive market movements or limit your risk during negative market movements, even if you're not at your computer at the time:

  • Take-Profit orders clear a position by buying (or selling) the currency pair of the position when the exchange rate reaches a specified threshold. Take-Profit orders are typically used to lock in a profit.

    For example, if you are long USD/JPY at 118.48 and believe the price will continue to rise until it reaches 120.00 but are unsure what it will do past 120.00, placing a Take-Profit at 120.00 will automatically close your position around 120 (should the market reach that rate) to lock in your profit .

  • Stop-Loss orders clear a position by buying (or selling) the currency pair of the position when the exchange rate reaches a specified threshold. Stop-Loss orders are typically used to limit losses and quantify risk.

    For example, if you are long USD/JPY at 118.48 and set a Stop-Loss at 117, your position will automatically be closed around 117 and you will be protected from a further price decline.

    Stop-Loss orders allow you a certain level of comfort when leaving a position open while you are away from your computer and not actively following the markets.

Note: A stop-loss or take-profit order is triggered when an exchange rate crosses a threshold, but the exchange rate used for executing the order is the most current exchange rate at the time the order is executed and not necessarily the threshold specified in the order. Thus, the rate applied for the execution of the order may be either higher or lower than the specified threshold because of the continuously changing nature of exchange rates.

Orders May Affect Your Other Open Positions!

When a market order is requested or a limit order is executed, the order closes out or partially closes out any counter open trade should one exist (regardless of any stop-loss or take-profit orders on that trade). A First-In-First-Out (FIFO) procedure is used, so earlier trades are closed first. For previous trades that are partially closed out, any associated Stop-Loss or Take-Profit orders are maintained for the remaining amount.

The following three examples illustrate this.

Example 1:

Existing open trades: Trade 1: Long $10,000 USD/JPY
Market or limit order: Sell $10,000 USD/JPY
Resulting open trades: none.

Example 2:

Existing open trades: Trade 1: Long $10,000 USD/JPY @ 120.00
Trade 2: Long $10,000 USD/JPY @ 121.00
Market or limit order: Sell $15,000 USD/JPY
Resulting open trades: Long $5,000 USD/JPY @ 121.00
(corresponding to half of Trade 2, which keeps any Take-Profit/Stop-Loss orders.)

Example 3:

Existing open trades: Trade 1: Long $10,000 USD/JPY
Market or limit order: Sell $15,000 USD/JPY
Resulting open trades: Short $5,000 USD/JPY

Trading off-exchange foreign exchange on margin carries a high level of risk and is not suitable for all investors. Trading through an on-line platform carries additional risks. Please refer to our more detailed Risk Warning, and NFA's FOREX INVESTOR ALERT.