The long and short of order types

Even if you’re new to Forex trading, one of the first concepts and pieces of terminology you’ll have encountered is that of long and short trades. This is relatively simple. If you go long you are buying the base currency in a currency pair and if you go short, you are buying the counter currency. If you are going long or buying USD/EUR, for example, you are essentially buying US dollars with euros. You are long USD but, at the same time, you are short EUR. If you sell the same pair, you will be short USD and long EUR.

forex trading long and short

When going long you are expecting (or at least hoping for) the price to rise. If this is the case, when you get round to selling again, the currency you bought will be worth more. When you go short, you are hoping for the price to fall so that when you buy back you will do so for less.

Those are the two basic trade types but there’s a lot more to successful trading than that. One vital area to master is learning which type of order to use for which situation. There are many different order types, including:

Market order

 This is one of the most common types of order and is executed immediately when placed, using the best available price. It immediately becomes an open position and is subject to market fluctuations. If you were to close your position at a higher or lower price than your opening, you would realise that profit or loss.

Limit entry order

 This is an order to buy or sell a currency pair when certain preconditions are met. Until they are, the order remains a pending order. You could, for example, place a limit entry order to buy or sell only when your chosen currency pair reaches a certain level. You could place an order when EUR/USD is at 1.3250, for example, with the buy limit set at 1.3300. The order would only activate if the price rose to that amount.

Stop-loss order

 A stop-loss order is a way of hedging or putting the brakes on if the market moves against you. You can prevent further losses by setting in advance the level at which the position closes. This can be very important in managing your risks and limiting losses.

Trailing stop order

 This is similar to the stop-loss order except that the trigger point trails the price while it moves in a favourable direction. This means your trade can gain in value but you can still reduce the amount of risk you are exposed to.

Good ‘til cancelled order

 A good ‘til cancelled order, as the name suggests, will stay in place until you cancel it. Keep track of these orders and don’t forget about them, otherwise they might activate in unfavourable conditions.

One cancels the other

 This is essentially two sets of entry and/or stop loss orders with different trigger conditions. When one order activates, the other one is cancelled.