Suppose you decide you're ready to open or close a trade – how do you do it?
You'll need to give your broker or trading provider the details so they can buy or sell on your behalf, and this is called placing an order.
An order is simply an instruction to buy or sell an asset.
There are various types of order, enabling you either to trade immediately or to wait until certain market conditions occur.
Once you've placed an order, you're free to turn your attention away from trading and leave the order to get on with the job in your absence. Depending on the type of order you choose, it can automatically:
If you simply want to deal immediately at the best price available, a market order is the one to use.
Provided the market is liquid enough - in other words, if there are enough willing buyers and sellers around at the time - your market order will be executed immediately.
An order that has been executed is called a 'filled' order.
It's important to be aware that market orders can be filled at a worse price than the current bid/ask price. We'll explain how this happens later in this course.
On occasions when you want to wait until a price reaches a more favourable level before you trade, you'll need to use a limit order.
A limit order is an instruction to trade if a market's price reaches a particular level that's more favourable than the current price.
Let's say GBP/USD is currently trading at 1.5055. Your analysis suggests that if it rises to 1.5065 it's then likely to fall again, so you decide to sell GBP/USD if it reaches 1.5065.
Rather than sitting in front of your screen monitoring the market, you place a limit order (known as a limit entry order) to open a short trade if the price hits 1.5065.
Two hours later, the market does indeed hit this level. Your broker executes your order and you sell GBP/USD.
Your trade then works in the normal way – so if GBP/USD falls as you predicted, you make a profit. If it continues to rise, however, you make a loss.
As well as using a limit order to open a new trade, you can also use it to close an existing position – protecting your profit if you're concerned the market might change direction and wipe out your gains.