Tuesday, April 19, 2016

What is a Stop Order in Forex

We’ve previously talked about the first two forex order types, namely the market order and the limit order. We’ve discussed their advantages and their disadvantages to guide you in choosing the correct type of order to use in every situation. Today, we’ll talk about another type of forex order, the “Stop Order”.

First of all, what is a “stop order” in forex? A stop order is an order that is used by the trader when he only wants his/her order to get filled once the market reaches a certain level. Once the market reaches the desired level, the stop order will become a market order.
Basically, a stop-loss order works by closing out the trader’s position as soon as the market starts moving against them. It works that way with the intention of minimizing the traders’ losses.

For example, if you are long EUR/USD at 1.09, you could set a stop-loss order at 1.07, and when it happens that the price falls drops to this level, then the trade will automatically be closed, preventing further losses.

However, you should remember that this type of order doesn’t prevent you from accumulating any losses, it can only minimize the amount of losses. Your order is closed at the current market price. In a very fast moving market such as the forex market, there is a high possibility to have a gap between the price you set for your stop-loss and the current price in the market.

Despite this fact, you should always consider putting a stop-loss instruction to your open positions. They can act as a very basic form of account insurance.

Learn more about the forex market and further understand what is forex by reading our educational forex articles. Visit our website, Wibestbroker.com to find out who the best forex brokers are!

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