There are 2 types of conditional order you can place with foreign exchange trades : the stop loss ( often written stop / loss ) and the limit order. We call these conditional orders because they will not come into effect unless specific circumstances are met. The stop loss is a well known order that controls the risk concerned in a trade. With a stop loss, you are saying to the broker, “If the price goes this far against me, I desire out. The stop loss will kick in and protect the bulk of your funds. With a limit order, you are saying to the broker, “If the price reaches this level, that is’s enough, I may close there and take it. ” The limit order will be triggered if your pre arranged price is reached and the trade will be closed at that price . Many traders are reluctant to use limit orders when they first start out. If the market is going your way, why would you want to shut the trade? Would you want to hold on as long as possible to get the most profit out of it?
The issue with that approach is that sooner or later the price will reverse, and often it does it sooner instead of later on. If you don’t place a limit order, when will you close the trade? How are you going to know when it has gone so far as it is going? If you wait too long, a sudden reversal could see all your profits wiped out.
So unless you’ve a system that’s set up with very definite criteria to tell you when to close a trade, you may possibly be better off if you use limit orders.
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