![]() This means that your trade closes on a high if you are not at your desk and able to stop it before it falls. The difference being, a take-profit order is executed at a currency rate better than the current market rate, while a stop-loss order automatically closes a trade at a currency rate worse than the current market rate. Similar to a stop-loss order, a take-profit order is executed automatically at a price specified by you. A take-profit order can be considered as a predetermined exit strategy that comes into effect when the market moves in your favour. However, in any form of currency trading, it’s important to make objective decisions, based on logic and discipline. It’s easy to feel optimistic when the market is moving in your favour. If the forex market moves against you and the exchange rate reaches the low price you’ve specified, the trade is automatically closed, limiting your losses. ![]() When you open a position, or set a pending order, you can also specify the stop-loss price. Essentially, a stop-loss order acts as a safety net to minimise your losses. This is exactly what a stop-loss order allows you to do. With online forex trading, you can set the currency rate at which to exit the market well in advance. However, if the rate drops below a certain point, you may choose to exit. It is unwise to exit a trade at the slightest drop in the exchange rate of your currency pair. The exchange rate of a currency pair moves up and down continuously throughout the day, even within a fraction of a second. Here are some risk management techniques that are commonly used in forex trading: Stop-Loss OrdersĪ stop-loss order is placed to minimise losses in the event the currency exchange market moves against you. These techniques are particularly important when using forex leverage. While risk cannot be completely removed, there are some risk management techniques that traders can use to hedge risks. However, every opportunity is accompanied by a degree of risk. The forex market offers significant opportunities to make profits. For new traders looking for more certainty, some of the leading brokers offer fixed spreads. It can vary, at times dramatically, depending on volatility in the market. Remember, the spread is not constant in a market and not consistent for any particular currency pair. Spreads in stock trading are typically much higher than spreads in forex trading. ![]() The lower, or tighter, the forex spread, the more liquid a market is said to be and the lower the implied cost of trading. ![]() In the above example, the forex spread is 1.1751 – 1.1749 = 0.0002, or 2 pips. The difference between the bid and ask prices is known as the forex spread. So, if you buy €1, you will need to pay US$1.1751. ![]() The second figure (to the right) is known as the ask price and represents the minimum price at which the market is willing to sell the US dollar. So, if you sell €1, you will receive US$1.1749. The first figure (to the left) is known as the bid price and represents the maximum price at which the market is willing to buy the US dollar. For instance, the EUR/USD exchange rate may be displayed like this: 1.1749 / 51 or 1.1749 / 1.1751. You may notice, however, that in forex trading, price quotes on trading platforms are showed with two rates not just one. ![]()
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