Capital Beans

Stop and Limit


Jul.20.2013

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One basic method for managing your forex investment is setting stop and limit orders. This means simply “ordering” your broker to fulfill your trade at a specific price and to get you out of a trade if you are losing more than you can afford.

“Do I have to shout, ‘stop!’ or yell, ‘limit!’ when I’m on the phone with my broker?” you ask.

You could, especially if you are upset with your boyfriend or husband and are looking for a scapegoat. But there is a much easier, healthier, and more professional method of doing this.

As we mentioned before, you make money by buying one currency low against another currency and selling it high against the same currency. Since the currency pairs are very active, jumping up and down, a Forex Diva calculates her risk appetite and possible profit by going through all the steps of the Invest Diva Diamond analysis. Then, before she clicks on “Place Order” on her broker’s platform, she clicks on the “Advanced” button, where she can find the option of setting a stop or a limit order. Obviously we advise you to use both to ensure a more profitable and less risky investment.

Limit order. This order automatically executes your trade when the currency pair reaches the particular price at which you wish to take profit.

Stop order. This type of order automatically closes your position if the currency pair moves against you by an amount that exceeds the amount of your risk appetite.

Danial Fig18 01

Remember

If you are entering a buy position (going long), your stop order should be smaller than the price at which you enter the trade. Your limit order should be larger.

If you are entering a sell position (going short), your stop order should be larger than the current price. Your limit order should be smaller.

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