Opening a position on the Forex market is slightly different from doing so on other kinds of markets. For one thing, you can open a position by either buying or selling a currency with equal ease. For another, you have several different ways to open a position. While every online trading site has its own unique interface, the methods of opening a position are similar wherever you decide to trade.
It's important to understand that opening a position means buying one currency and selling another. Even when we sell one currency short we buy a different currency instead. There is always one currency being bought and one currency being sold.
The first thing you'll need to open a position on the FX market is a trading account. If you aren't yet comfortable trading with real money, a practice account will do. If you're using a real account, you must also have funds to trade with. If you have these two components and the market is open, you can open positions.
The following is a list of all the basic types of orders you can issue:
- Market order
- Limit order
- Stop-loss order
- Limit entry order
- Stop-entry order
- OCO or one cancels other order
A market order means you either buy or sell at the current market price. By contrast, limit orders are used for entering positions at a pre determined price. A trader can utilize a Take Profit order to close his market position when he reaches his profit target. The stop-loss order is made so that your position will be closed when the currency price reaches the price you chose as a stop loss. With a Stop Loss order, traders can specify a closing point for a losing market position.
Limit entry orders will open when the price reaches the limit entry rate given. If you want to buy the pair the limit entry order will be lower than the current market rate. If you want to sell the pair it will be placed higher than the current market rate. Limit entry orders are used mostly for range bound trading.
By contrast, a stop-entry order is used to either buy for more than the current market price or sell for less, which is useful if you believe a trend will continue. A stop-entry order is the opposite of a limit entry. When you want to join a breakout in either direction (up or down) you place the stop-entry order outside of the bounded range. The trader placing this order believes that if the market reaches that rate the trend movement will be confirmed and continue in that direction.
In most Forex trading windows, all you have to do is pick a currency pair and select what you want to do with it. For example, if you pick GBP/AUD you can either buy or sell the first currency, in this case the British Pound. You are essentially borrowing Australian Dollars to purchase British Pounds or you short sell the Pound to get Australian Dollars, depending on which way you open your position.
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