The good news is that with most Trading Platforms you don’t have to worry about all that BUY STOP, BUY LIMIT, SELL STOP, SELL LIMIT stuff.
Those trading platforms try to make order types as easy and intuitive as possible. As a result, a lot of the complexity gets hidden in the background.
For example, FXCM and many other brokers, offer you the choice of placing a MARKET order or an ENTRY order. You know what a market order is. And intuitively you know that an entry order must be one of those stop or limit orders talked about here on this thread. But, which one is it?
Well, the beauty of the ENTRY order protocol is that you don’t have to worry about it. The platform places the correct type of order for you, based on whether the price you have specified is above or below the current price. For ENTRY orders (orders to OPEN a position at a specified price), there are 4 possibilities:
Let’s say the current price is 1.5000, then —
[B]To open a LONG position at 1.5020 (above the current price)[/B] you would select ENTRY ORDER, select BUY, and enter the price at which you want to enter LONG. The platform will automatically enter a BUY STOP order at your specified price. You didn’t have to remember whether this should be a stop order or a limit order.
[B]To open a SHORT position at that same price, 1.5020[/B] (which is above the current price), you would select ENTRY ORDER, select SELL, and enter the price at which you want to enter SHORT. The platform will automatically enter a SELL LIMIT order at your specified price. You didn’t have to remember whether this should be a stop order or a limit order.
[B]To open a SHORT position at 1.4980 (below the current price)[/B] you would select ENTRY ORDER, select SELL, and enter 1.4980. The platform will automatically enter a SELL STOP order at 1.4980. You didn’t have to remember whether this should be a stop order or a limit order.
[B]To open a LONG position at 1.4980,[/B] you would select ENTRY ORDER, select BUY, and enter 1.4980. The platform will automatically enter a BUY LIMIT order at 1.4980. You didn’t have to remember whether this should be a stop order or a limit order.
It’s easy to get confused about stop orders and limit orders, when you’re talking about [B]entering a position.[/B] But, orders to exit a position are simple.
The order we all refer to as a STOP (meaning a stop-loss order) is simply a stop order. And it’s easy to know whether that order is a BUY STOP order, or a SELL STOP order. Clearly, if you’re LONG, your STOP will be a SELL STOP. And if you’re SHORT, your STOP will be a BUY STOP.
A LIMIT order (meaning a take-profit order) is simply a limit order. And it’s easy to know whether that order is a BUY LIMIT order or a SELL LIMIT order, based on whether you are taking profit from a SHORT position or from a LONG position.
But, with platforms such as FXCM’s and others, you don’t even have to remember that. You simply add a STOP with a specified price, and a LIMIT with a specified price, to a MARKET order, or to an ENTRY order, or to an open position, and the platform will do the rest.