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How to Use Forex Trading Limit and Stop Orders

In this section we will explain about the different limit order and stop orders that are available and are used for Forex trading strategies. Limit and stop orders have a similarity to support and resistance levels, as they are also usually at the far edges of the currency price graph, and are set either to reap profits or prevent losses.

Limit orders

Forex Trading Limit entry orders are executed only if the currency price touches but not breaks the price you set. Limit orders are done when traders want to set the limit price. These orders are executed only if the currency reaches the limit price you set. Limit orders are used when you want to buy and sell a currency only if it reaches a certain price or better. Let's say the currency pair EUR/USD is worth 1.245, and you buy a limit order of 1.249. This means that the transaction will be executed only if the currency price rises to 1.249.

Stop orders

A stop order is placed to accumulate profits or to prevent losses. To place a stop order, simply specify the price where you'd like to place the stop on. Stop orders are sometimes names stop loss orders, and can occur for both bid and ask transactions.

A stop loss order is a type of Forex Trading limit order that serves as a protection against a large drop in currency price. If the currency price falls beneath the price you set, it is automatically sold, thus ensuring you do not lose too much money.

Take profit orders are limit orders that are set to help investors reap currency price raises. Let's say you buy the EUR/USD for 1.245, and you want to place a stop on 1.240. This means that if, after you buy it, the currency drops to 1.240 or below, your currency will automatically be sold off, and you will prevent any further losses from occurring.

Trailing stop orders

Forex Trading Trailing stop orders are used to lock in profits. Let's say you buy GBP/USD for 1.6540, and the price rises to 1.6570, making you a profit of 30 pips. Now a new stop order is placed at 1.6560, so you lock in the previous rise. When you place a trailing stop you specify the positions of the trailing points, and the increase in the stop will be done automatically.

Tania Raven, Market Analyst

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