Wednesday, April 13, 2016

What is A Market Order in Forex

We have previously discussed the different kinds of forex order and acquired a little knowledge about them. Today, we will further discuss the first and the most common order type in forex trading – the market order.

A market order is an order that is executed at the current market price. When a trader places a market order, he/she is basically allowing his broker to buy a share at the current market price.

Placing a market order guarantees that your order will be executed. However, this type of order entails some risk, as the trader will not be able to determine at what price would his order be transacted at. 

Depending on the movement of the market, the final price of the his/her transaction might end up higher or lower than the trader’s expected price. This event is what traders call as “slippage”.

Basically, the reason for this event is because the market is dynamic. Prices are changing on a regular basis and on an unexpected timing, so the prices could go higher or lower even before your order gets executed.

For example, the trader places a market order at the time that the EUR trades at a rate of 1.13 USD. However, just a few moments before his order was filled, the EUR suddenly rose against the dollar, and the new exchange rate became 1.15 USD. Because of that, the trader would have to pay 0.02 more dollars per euro, giving him a negative slippage. 

However, should the price movement go the other way, and the EUR became weaker against the dollar, then the trader would have to pay less than what he actually expected, giving him a positive slippage.

These kinds of incidents can actually be avoided by placing other kinds of forex orders, but we will discuss this in our other articles. For now, I hope you already understand how market orders work in the forex market.

Further understand how the forex market works and be a better trader by reading our educational articles. Do you want to know who the best forex brokers are? Then you should go and visit!

No comments:

Post a Comment