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Stock orders

Deals executed by the Brokers for its clients are conformed to the orders. The simplest stock order is a market order. It is an order to buy or sell at a current price (“market price”). This order means immediate price (Ask) announced by the Sellers when you buy and immediate price (Bid) when you sell. Let’s digress from a topic for a minute and clarify the following: we have already known that there two types of prices at the market: Ask and Bid. Well, it is easy to become confused. What price should we put an order at? How to calculate profit and loss? Fortunately it is very simple. First of all you should remember one principle – a deal is always executed at the less profitable for a trader price. A trader buys at the most high price – Ask, and sell at the most low price – Bid. Secondary, it is not necessary for a trader always keep this principle in the mind – modern trading terminals execute it automatically.

It is obvious, that the usage of a market order opens wide opportunities of manipulation for a Broker. Simple analogy – you want to exchange 100 USD to rubles, but have to do it via intermediary (Broker), then a market order will be the following: “Buy rubles at any price for 100 USD). In this case you are fully rely on the Broker’s honesty. The simplest scheme which may be performed by a Broker is to execute your order at a maximum price, countertrade transaction at a minimal price and pocket the price. You even will not notice it. That is why specialists do not recommend to use a market order at Forex. Market order is widely spread at share and future market. At Forex quote request is used instead. Quote request is used for position opening, though this is not the only method. Making a quote request a trader tells a Broker currency pair and lot size. Broker gives a trader Bid and Ask prices. But a Broker can not give a trader the price immediately because he needs to check whether a trader has a right to work with such a lot, contact its market-maker and request a quote from him, wait for an answer and only after these procedures give a price to the trader. In average it takes from several seconds up to half a minute. In case an order executes during more than 30 seconds it is better to choose other order types or change Broker. Having received an answer to the request a trader should choose “Buy”, “Sell” or “Nothing” (it means that a trader refuses to open a position). The deal is considered to be executed after a trader says “Buy” or “Sell”, a Broker confirms it with the message that a trader buys or sells xxx lots at xxx price. Conversation is recorded by the Broker. The work in the Internet via trading terminal is easier but the essence is the same. Actually a trader has a right to request a quote as many time as he wants and always refuse to execute it waiting for more profitable price, but some Brokers limit this right (otherwise a broker is overloaded with the request and other traders can not get through). “Quote request” – is the main and widely spread order for position opening but there are some other types of orders. Let’s examine other trader’s instruments.

Limit order

To avoid buying or selling at a price higher or lower than you wanted, you need to place a limit order rather than a market order. A limit order is an order to buy or sell at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. Many newbies make the following mistake: they place an order relatively to a price of opened position, but an order should be placed relatively to a current price. For example: limit order is always placed at the more profitable price relatively to the current market price. If you want to place a buy order its price should be below the market price, if you have a sell order its price should be over the market price. Suppose a trader bought EUR at 1.0150 and a price falls to 1.0120. Trader wants to place a Sell order at 1.0140. Order price is over the market price, so it is a limit order. A newbie may orient at price of position opening 1.0150 by mistake. Another instrument is a stop order. It performs an opposite function. The price of the Buy stop order is placed above the current market price, Sell stop order is placed below the current market price. Do not hurry to decide that this instrument is useless. Stop order is a very important instrument for a trader, it defenses a trader from losses. Buy Stop Order — Investors typically use a stop order when buying stock to limit a loss or protect a profit on short sales. Sell Stop Order helps investors to avoid further losses or to protect a profit that exists if a stock price continues to drop. But this defense reminds a lizard which drops off a tail or a wolf which gnaws a paw off when falls into a trap.

It often happens that when a stop order executes you have 1-5 additional pips of losses. It calls “slippage”. There are some types of the mentioned above orders like pending orders, when order starts performing after another order has executed. But I am not sure in its efficiency. I think these hybrids are not worth examining now, just keep in mind that peculiarities of its work you should clarify with your Broker. Take Profit and Stop Loss orders take an important place among trader’s instruments. These are common limit and stop orders but connected with a certain open position. Take Profit order is practiced by forex traders to close positions when a profit level is reached, Stop Loss is an order placed with a broker to buy or sell once your loss reaches a certain price. A stop-loss is designed to limit an investor's loss. StopLoss is a guillotine which chops off a part of your money and throw you out of the market, a catapult is always painful, but at Forex it is always so who can not chop off a finger often losses a head (but not always).

Let’s see what will happen in case you decide to place an incorrect order, for example, Buy limit order at higher price? Theoretically it will be instantly executed at price you entered. This is the same as at flea market where a price for watches is 12 USD and you shout that you are ready to buy at 15 USD. You will find a Seller immediately. But you are a trader who works with two intermediates as minimum. That is why your order is executed at a highest at the market price – 12 USD. If you place Sell stop order in the same situation at 10 USD – it will be executed immediately as well. Who refuses to buy at 10 if a price is 12! A Broker may buy at 10 itself and sell immediately to somebody else at 12 and get a profit 2 USD. Fortunately, the majority of Brokers do not let you make this mistake. Usually trading terminal warns you that this order will be executed immediately and in case you work on the phone an operator tells you about the mistake. But a trader should be able to think himself.

The last question which I am going to discuss with you is limitation on the differences of prices supply. It seems that it is enough to open position and place take profit 1pip and wait when it will be executed due to the price fluctuations. Repeat this operation 100 times and get 100 pips profit. But these are just dreams. Do not forget about spread! In order to get 1 pip profit you have to wait until the price changes at least on 4 pips (in case spread is 3 pips). But even this at first sight profitable strategy does not always work, because some Brokers do not allow to place an order closer than a certain delta of the current price. Different brokers may establish this delta from 5 to 15 pips. Usually this limitation is introduced by the market-makers and Brokers has to obey. On the other hand I do not meet Brokers without limits connected with orders. Before starting your work clarify for yourself what orders your Broker has and what are the peculiarities of their placing and execution, read an agreement carefully, try a Demo-account and in case any questions exist do not hesitate to contact your Broker via e-mail or by phone. Start trading only after all nuances are clear for you.

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