Orders and Trades 

Generally speaking, there are three types of Forex orders:

1.     Market order – an order to buy or sell a currency

2.     Limit order – an order to capture gains from advantageous market movements

3.     Stop order – an order to forego further losses from disadvantageous market movements

If a trader believes the value of a base currency will increase relative to its pair, the trader should place a Market Order to buy the currency at its “Ask” price. However, in order to protect against the risk of significant losses, a prudent trader will simultaneously place a Stop Order to sell the currency if the “Bid” price drops to a certain level. In addition, in order to capture profits, a trader will often place a Limit Order to sell the currency if the “Bid” price rises to a certain level.

In contrast, if a trader believes the value of a base currency will decrease relative to its pair, the trader should place a Market Order to sell the currency at its “Bid” price. However, in order to protect against the risk of significant losses, a prudent trader will simultaneously place a Stop Order to buy the currency if the “Ask” price rises to a certain level. In addition, in order to capture profits, a trader will often place a Limit Order to buy the currency if the “Ask” price drops to a certain level.

Therefore, prudent Forex trading would suggest that every “buy” order be coupled with two “sell” orders; and every “sell” order be coupled with two “buy” orders.