Orders and Trades

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.

Candlestick Charts

Candlestick Charts

A candlestick chart shows how currency pairs fluctuate in relative value over time. The x axis shows time in what ever increment a trader wants to see it. It could be minutes, hours, days or even weeks. The y axis shows the value of one base currency unit relative to the other currency in the pair. The candlestick chart below shows EUR/USD at five minute intervals over four hours.



The body of the chart shows blue and red rectangles - which are the "candlesticks". When the candlestick is blue, it means the value of the base currency has increased relative to its pair in that time interval. For blue candlesticks, the bottom edge is the opening price and the top edge is the closing price in the time interval.

When the candlestick is red, it means the value of the base currency has decreased relative to its pair in that time interval. For red candlesticks, the top edge is the opening price and the bottom edge is the closing price in the time interval.

The thin lines protruding from the top and bottom of the rectangles are called “wicks” or “tails” or “shadows”. They display the high and low prices of the base currency relative to its pair in that time interval.

Most often, we see “Bid” charts – which shows the price of selling the base currency relative to its pair. But a trader can also choose to display "Ask" charts - which show the price of buying the base currency relative to its pair.

Currency Quotes

Currency Quotes



Reading a foreign exchange quote is simple if you remember two things:

1. The first currency listed is the base currency

2. The value of the base currency is always 1



A currency pair quote is comprised of a bid/ask price expressed in the following format:

EUR/USD: 1.2836 / 1.2839 or EUR/USD: 1.2836/39


The first number in the series represents the bid price, the cost of selling the Euro against the Dollar, or going ‘short' on the Euro.

The second number represents the ask price, the cost of buying the Euro against the dollar, or going ‘long’ on the Euro.

The difference between the ask price and the bid price is called the pip spread.

What is a pip?

A pip (or “percentage in point”) is the smallest unit of measure for any currency. In most currencies, this is the fourth digit after the decimal point and is equal to 1/100th of 1% or .0001. So, using the example above (EUR/USD: 1.2836 1.2839), the spread is 3 pips (39 – 36).

NOTE: For Japanese yen, pips refer to the second digit after the decimal point. This is the only exception among the major currencies.