In our last lesson we finished up our discussion on the logistics of leverage in the forex market with a look at how to calculate your leverage ratio when the US Dollar is not the Base currency in the pair. In today's lesson we are going to continue our free forex trading course with a look at the main types of orders used when trading forex.
The most basic type of Order when trading the forex market or any other market for that matter is something which is known as a market order. If you have been following our lessons up to this point you should already have executed several trades on your free real time demo accounts by clicking on the dealing rates window. When doing this you are executing what is known as a market order, which is defined as an order to be executed at the current market rate.
The advantage of a straight market order is that you pretty much will always be filled on your order at some price. The disadvantage of a market order is that you can be filled at a price that is way off the price that you clicked in the dealing rates window. Since the forex market is such a liquid market this is not normally an issue but is something that we need to be aware of, especially when trading around news announcements or other volatile times in the market. During these times orders can be filled at prices which are significantly different than the price the trader clicked, something which is known as "slippage".
To quickly demonstrate a straight market order lets pull up our free real time demo trading accounts and execute a trade. If you have not done so already I encourage you to pause this video now and register for a free real time demo account at the link above this video if you are watching on InformedTrades.com or to the right of this video if you are watching on YouTube so you can follow along as well.
Once you have logged into the platform choose a currency pair that you wish to trade and click in the dealing rates window to bring up the market order window. Notice in this window the bottom line which says "at best". This is how we know this is a true market order, as this means that the order will be done at "the best" available price in the market. In the forex market this normally means you get the price which you clicked, however as we just stated there are exceptions to this where slippage is an issue.
For those who want to protect themselves against slippage when using a market order, which in my opinion is a good idea, this particular platform allows you to change the at best line to "market range". Go ahead and do that and once this is done you should see a new box appear beside the market range box which allows you to enter a number. What this does is allow you to specify the number of points of slippage that you are willing to accept on the trade in order to be executed.
If for example you set this number to zero then you will either be executed at the price you clicked or better, or not at all. If you set this number at 2 then you will be executed within two points of the price you clicked on or better or not at all, and so forth and so on.
This is one of the things that I like best about this platform, as it allows you to tailor the amount of slippage that you are willing to accept, instead of having to choose between either no slippage and unlimited slippage.
Thats our lesson for today, in tomorrow's lesson we will cover what is perhaps the most important order of all, the stop loss order, as well as something which is known as a limit order so we hope to see you in that lesson.
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Risk Disclosure: Trading forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.