Controlling Trades

The Forex market is a very fluid market with high volumes of buyers and sellers. The spread is greatly affected depending on whether there is mainly buyers or sellers of the currency pair at any one time. A market that is mainly buyers will drive the price of the currency up whereas a market influenced by mainly sellers will drive the price of the currency pair down. Popular currencies generate competition between buyers and sellers and force the spread to become smaller. As the market is so volatile and prone to change there a number of ways to control the trade to limit loss and lock in profit.

Placing a market order will initiate a trade at the current market price. Placing a limit entry order can be used to benefit the trader when the price of a currency falls, for instance if a currency is currently priced at 1.3650 and you would prefer to buy at a lower price of 1.3600 simply place a limit entry order at the preferred price.

On the other hand a stop entry order can be used when the price of a currency increases, usually this isn’t seen as beneficial but can be used to go long when the price is increasing and you believe it will continue to increase and be sustained by the market. If a currency pair was trading at 1.3600 and you wished to buy it if it rose 40 pips to 1.3640 simply place a stop entry order for 1.3640 or 40 pips.

A final method of controlling trades is the trailing stop. This is not usually recommended due to the rapidly changing nature of the Forex market. A trailing stop may be in place for 25 pips. If the chosen currency started at 1.4525, rose quickly to 1.4550 then dropped suddenly back to 1.4525 the trailing stop would be activated, if the currency then rose again there would be no chance to profit as the trailing stop would prevent it. The problem with this is that it can happen very suddenly and severely restrict profit, an advantage for the cautious trader is that it can also prevent loss effectively.

The main advantage with a trailing stop is when profits rise dramatically by hundreds of pips. If a trade suddenly increased by 150 pips then continued to rise a further 200 pips a trailing stop can help to lock in profit and minimise loss. Whilst the pips are rising you need to decide what percentage of your profit you are prepared to give up if the pips start to fall again. Take an example case of a trade that has dramatically risen by 500 pips, the trader decides that they can release 25% of their profit if the market starts to fall. A trailing stop is set at 125 pips. This means that if the market falls the trade will stop after falling 125 pips (25%) locking the rest of the profit in (75%) and preventing further loss. The benefit of this is that if the market keeps rising there is no chance of being stopped out and the trader stands to benefit from larger profits.

Sunday Afternoon Eastern Standard Time Market Activity Markets Open
14:00 Markets open in Sydney, Australia            
19:00 Markets open in Tokyo, Japan            
21:00 Markets open in Singapore and Hong Kong            
Monday Morning Eastern Standard Time Market Activity            
02:00 Markets open in Europe, Frankfurt            
03:00 Markets open in London, England            
04:00 European markets fully functioning, Asian markets winding down            
08:00 Markets open in New York, US, European Markets closing.            

The beauty of FOREX trading is that the markets are continually open for trading. The table above indicates which markets open at what time and also show the busiest times for trading when the different markets overlap.

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