Today a little about orders we can place in Forex and a little about the costs. As you may know in Forex we can earn or lose money on the exchange rate. To invest money we have to choose from two kinds of orders:

• with the instant execution: BUY, SELL
• pending orders for ex. BUY LIMIT, SELL STOP, SELL LIMIT, SELL STOP

We can negotiate some conditions of closure. They are:

• StopLoss in short SL – defines to which level we accept the loss
• TakeProfit in short TP – defines the level the order is closed with the profit.

When to open the order and what kind? W can open the order when the market works. The kind of the order depends on the price. If it rises or falls. As it is shown in the picture the kind of order called BUY can be placed when the price is rising. The other type of order called SELL can be placed when we except the price to fall down.

I pictured BUY and SELL orders above.

In the first and the second I signed levels of TP and SL. The price used to place an order is circled (Entry). When the price riches one of the levels either SL or TP the order is going to be closed. When placing an order you must take into consideration the level of stoploss and takeprofit, to make them bigger or smaller than the price, otherwise the operation cannot be done.

For example:

We place BUY order with a currency pair EURUSD the price is 1.6234. We set the level SL to 1.6200 and TP to 1.6300. When the price will rise to 1.6300 or more then our order will be closed with this rate  then we will earn: 1.6300-1.6234 = 66 pips (how much is it? can be read in here). When the price would reach the level of 1.6200 the lose would be: 1.6234-1.6200 = 34pips. If we would for example (instead of BUY order) used the SELL order so the appropriate level 1.6200 would be TP and 1.6300 would be SL, then the loss and the profit would swap.

And here are some pictures showing a pending order.

DESCRIPTION:

• Green line – TakeProfit
• Red line – StopLoss
• NUMBER 1 – current price
• NUMBER 2 – blue line – the price I which the order is going to be done
• DOTTED LINE – expected prices movement

In the picture I have shown the SELL LIMIT order. We place it when we are waiting, the market to achieve a level (2), then the situation will change and the price will start falling. Similar situation is with BUY LIMIT, the difference is, that when the price achieves level (2) then it will rise. In the orders BUY STOP we can be sure that when the price achieves point (2) then it will fall and in the order SELL STOP it will  still rise. In call pending orders lines TP and SL are “activated” on condition that the price will achieve point (2). After achieving this point the orders:

• SELL STOP and SELL LIMIT – changes into SELL
• BUY  STOP and BUY LIMIT – changes into BUY,

when the blue line becomes an entry price. You must remember, that SL and TP lines must be appropriately placed to the entry price (blue line) but not the current price (the light blue line).

In one of my lectures when I have mentioned Ask and Bid and how much do they cost. Let us now look at the diagram.

In the picture above we can notice two prices:

• the red one 0.8778 called Ask
• the black one 0.8772 called Bid.

They are very important when we place and close an order. The Ask price is the price we are going to pay for the order BUY (Entry price) at the same time it’s a price we are going to pay for the order of SELL type. The situation is opposite when we ask for Bid. After Bid we place SELL order, and close BUY at the same time. It’s important to have it in mind, because when our order is accepted we will pay the amount of spread automatically.

For example:

If Ask cost 0.8778 and Bid costs 0.8772 when opening BUY we will start the transaction and pay 0.8778 for it but we are going to pay 0.8772 for any other further step in this transaction. It means that when our order is accepted and being realized we will lose: 0.8778-0.0772 – 0.0006 point, so 6 pips (spread).

It may happen that we prolong the order for a day a more. In such a case we will have to add swap point. They are being setup for SELL and BUY and pair of currencies separately. It’s very important to check a pair of currencies up. How many points we are going to lose in swap, we should also check spread, liquidity and commission. All kind of order can be closed at any time.
It’s worth mentioning that  with brokers who change a commission on the basis of spread, the pending orders may be opened and closed without meeting any costs before they are transformed in BUY or SELL. It’s possible to modify SL and TP parameters. The value of which we can place an order depends on leverage and our individual savings – which can be defined in microlots, minilots or lots.  I have already described in the previous article how to calculate what the value of the order may be. We must remember here about the leverage, which may for example at 500:1 and 20 points loss commission clear our account completely.

Why is it important to have some info about risk management? – I will explain it soon.

Take  some practice now!