In the Forex market, just like the stock market, you have to give orders to execute trades. Each order is very distinctive and used for completely different objectives. Still, all orders have one big purpose – to generate a profit or stop a big loss. These orders can be straightforwardly executed from the trading platform supplied by your broker, so you can make the most profit.
The most ordinary order is the buy order. This order occurs on the ask price, meaning the price your broker is willing to sell you the currency pair. When you use the buy order, you sell the quote currency (the “bottom” currency in a currency pair, such as the US dollar in the EUR/USD pair) and buy the base currency (the Euro in the EUR/USD pair). With a buy order you want the exchange rate to move up so you can make a profit.
The sell order is also ordinary. When you use the sell order, you sell the base currency and buy the quote currency. This order is used mainly to close trades after a buy order. However, sometimes the sell order is used for short selling, which means you sell something you don’t have and assure to buy it back later. In this case, you sell a currency pair with a want that the exchange rate will go down, so you can buy it back at a lower price and make a profit.
Stop loss is an order which is supposed to save a trader from big losses. After entering a trade, most traders and trading system set a stop loss point. This point means that if the price goes beyond the point, the trade is instantly closed and a big loss is prohibited. All good trading systems use stop losses, mainly to limit their risk and potential losses.
Limit orders are also common in the Forex market. This type of order means that the trader will enter a position only if the exchange rate reaches a certain point. Limit orders are used by good trading systems to take profits and ensure the hard earned profits will not go down the exhaust with one bad market progress.