Now I am getting into this series of lessons, it occurred to me that this is a good introduction to charting in general for a newcomer to Forex who has not navigated one or more of the broker charting packages. It takes the trainee through simulated events to learn slowly which tabs, icons, buttons or drop down menus to use for each of the most basic (and some of the advanced) functions.
Just over half way through I am enjoying the journey, and it has reminded me of some of the important things about order placement that I have forgotten over the past two years. I’ve been too busy with Crypto exchange platforms to notice the difference.
I have suspended the use of screen snippets in the interests of getting this series of lessons completed early to be able to move on to some practical examples of back testing.
If the content is difficult to follow, please do comment and I will fill in any blanks for the benefit of those following this thread.
L11 What is a PIP?
One PIP is the fourth decimal point of 0.00000 equal to one / 10,000 of the exchange rate. JPY is an exception to this – it is the second decimal place, because there are around 100 JPY to one USD. So the second decimal place is still one ten-thousandth of the exchange rate (0.01 is 100/10,000). The fifth decimal place is called a pipette or more commonly referred to as a “point” by Forex traders. One point is 1/10 of a PIP.
L12 What is rollover?
Rollover is the automatic renewal of an open trade at 5pm EST, 10pm London time or UTC (Coordinated Universal Time). UTC succeeded GMT (Greenwich Mean Time).
L13 What is the PIP’s worth?
FT5 only uses USD as the currency of account denomination.
Lot sizes definitions
FT5 simulates selling two EURUSD orders (a 0.1 lot and a 1.0 lot). The Open Position window at the foot of the screen shows the “points” value (tenths of a PIP) is the same for both trades whilst the profit values differ by an order of magnitude (one is ten times the size of the other).
L14 What is a LOT in Forex?
A LOT is the currency unit quantity required for a trade. Lot sizes are tabulated in L13 above. For each pair, the standard LOT is denominated in the base currency (the one at the start) so:
One lot of EURUSD = €100,000
One lot of USDCAD = $100,000,. and
One lot of GBPUSD = £100,000
In FT5, the lot size appears in, and can be adjusted from, the Symbol properties. Eg. Open “Data” tab > Data Center > Click Symbol (EURUSD) box. Open “change properties” box. The default lot size is 100,000 (a standard lot). Change default size (eg to 10,000), close the Data Center window and click the Exit button.
The lot size represents the amount of risk you are assigning to each trade. (in currency). As price changes are measured in PIPs, their monetary value for each lot size of a particular currency will differ.
If you are a new trader, always start in a demonstration (demo) account using the micro lot. When you make a mistake (and you will make mistakes), their impact will be minimal. This is a good preparation strategy for real world trading.
L15 What is an order?
Orders can be placed over the telephone, though it is rare these days for a retail trader (you and I). It is far more common today for retail traders to place orders with a broker via an online application or “trading platform” that your broker account is set up to use.
Market order – is settled in real time
Pending order – waits for a matching order to become available in the market
L16 What is a market order?
An order from a trader to a broker to buy or sell an asset at the price the broker has provided. Trader buys at asking price and sells at bid price. See L9 for details of bid / ask price and spread.
FT5 simulates a market order.
Go to Home > Market Order >. The market order window opens.
Simulation chooses symbol EURUSD and lot size 0.1 lot. On the chart, at the time of order, a “buy” text box appears with a buy price of 1.23297 shown on the right hand chart axis.
At the foot of the page, ticket #1 shows a EURUSD Buy order for 0.1 lot at 2018.04.02 10:04 hours, Open Price 1.23301, SL 0, TP 0, Market Price 1.23297, swap 0, commission 0, points -4, profit -0.40.
Click “Order” > Close Order.
L17 What is a pending order?
A pending order is one that is created to be executed at a later time at a price you have indicated. The advantage of a pending order over a market order is to protect a trader against significant losses.
If the indicated price is never reached, the order is never fulfilled. There is no order risk (and no reward either) for the trader.
FT5 shows a table of pros and cons of market orders vs pending orders.
There are four types of pending order:
L18 Buy Limit and Sell Limit Orders
Limit order – to buy or sell a trading asset at a specified price or better.
Limit orders are good solutions for thinly traded, or highly volatile assets, or those that have a wide bid/ask spread.
FT5 simulates placing a buy limit order.
Click “pending order”, and choose “symbol”, then “type”. Click the pipette icon (At Price). A dashed red line appears on the chart (GBPUSD, H1). Drag the line to the desired buy limit level (eg 1.42941) just below the open of the previous candle. Note the box (buy limit (-101) on the chart. The buy limit level is 101 PIPS below the current market price.
Click “place order”. Click “pending orders” tab at the foot of the screen. All pending orders are listed. FT5 simulates a buy limit order that is fulfilled. The pending order has moved from Pending Order tab to Open Position tab when the price hit the “buy limit” value of your pending order.
L19 Buy Stop and Sell Stop orders.
A buy stop order is an instruction to buy an asset once the market reaches your minimum specified price or higher. The buy price specified needs to be higher than the current market price. You place a buy stop order when you expect the price to reach a certain level, then to keep rising.
A sell stop order is similarly described in this lesson.
The FT5 simulates a sell stop order.
Choose “pending order” icon. Select the Type drop down menu and choose “Sell Stop” order type.
Click the pipette at the “At Price” box. A dashed red line appears on the chart.
The price should be LOWER than the current price for the sell stop order. Eg. Drag the line to 1.42818 just below the low of the candles 6 and 8 hours ago. Note the line appears as “execute price” at 1.42810.
Click “place order”. The dashed line colour changes from red to green and the order appears in the Pending Order tab at the foot of the chart.
Click the “Resume” icon. FT5 continues the simulation until the price reaches the Sell Stop price. The Pending Order entry moves to the Open Positions tab.
The Pending Order has been turned into a market order at the Sell Stop price. Click “close order” to end the simulation.
L20 What is Stop Loss?
If a market or a pending order is fulfilled, any stop loss that has been specified in the order setup is attached to the open position automatically by the broker. For long (buy) position, the stop loss is always set below the current Ask price. For short (sell) positions, the stop loss is always set above the current Bid price.
FT5 simulates adding a stop loss (SL) to a market order.
Note: Don’t type anything into the Stop Loss box (9 of 21).
Click “Sell” at next tutorial prompt. FT5 reports: “The current bid price is 1.40313” Change the stop loss from 30 pips (default setting) to 100 pips in the drop down menu. Click “Next”. The click the green button to the left of the 100 pips box that has been greyed out. The SL value is calculated by the simulator to be 1.40413 – or 100 pips higher than the current price.
Click the Sell button. The chart shows a dashed red line at 1.40413 (stop loss) and a dashed green line at 1.40313 (the market order price).
The order appears as a line entry (ticket #1) in the Open Positions tab at the foot of the screen.
The position remains open until it is liquidated (reaches the stop loss value) or until you cancel the order.