There are 2 types of conditional order that you can place with forex trades : the stop loss ( sometimes written stop / loss ) and the limit order. We call these conditional orders because they will not come into effect unless specific conditions are met. ” So if you have purchased a currency pair wanting an increase in price, but then the price falls, you will not see your entire account balance wiped out. The stop loss will kick in and protect the majority of your funds. A limit order is similar but applies to the opposite situation, the situation where you have got a winning trade. With a limit order, you are saying to the broker, “If the price reaches this level, that’s’s enough, I may close there and take it. ” The limit order will be caused if your pre arranged price is reached and the trade will be closed at that price .
Many traders are reluctant to use limit orders when they first start out. It appears counter intuitive. If you do not place a limit order, when will you close the trade? How are you going to know when it has gone as far as it is going? If you wait too long, a sudden reversal could see all of your profits wiped out.