Placing a Trade
Forex\Stocks
3.0
Order Types (Forex\Stock Trading)
1. Market Order
- Definition: An instruction to buy or sell immediately at the current market price.
- Use Case: Traders use this when they want in or out of a trade fast.
- Example: If EUR/USD is trading at 1.1000 and you place a market buy, you'll get the best available price—perhaps 1.1001 or 1.1003.
2. Limit Orders
- These let you set your own preferred entry or exit price.
Types:
- Buy Limit: You want to buy at a lower price than where the market is now.
- Sell Limit: You want to sell at a higher price than the current level.
- Example: EUR/USD is at 1.1000. You place a buy limit at 1.0950, meaning you'll only buy if the price drops to 1.0950.
3. Stop Orders
- Trigger trades once the price reaches a specific level, often used to catch momentum.
Types:
- Buy Stop: Buy when price rises above a certain level.
- Sell Stop: Sell when price drops below a certain level.
- Example: If EUR/USD is at 1.1000 and you believe it’ll rally if it breaks 1.1050, you place a buy stop at 1.1050.
4. Stop Loss Order
- A risk management tool that automatically closes a trade to prevent further losses.
- Example: You buy at 1.1000 and set a stop loss at 1.0950. If the price drops to 1.0950, your trade exits automatically.
5. Take Profit Order
- Automatically exits your trade once it hits a certain profit level.
- Example: You buy at 1.1000 and set your take profit at 1.1100. If the market reaches 1.1100, you lock in your gain.
6. Trailing Stop
- A moving stop loss that follows the market price as it moves in your favor.
- If the market turns, the stop stays put, securing your profits.
7. OCO (One Cancels the Other)
- You place two trades, often with opposing conditions.
- If one activates, the other is automatically canceled—great for breakout strategies when you’re unsure which way the market might move.
Forex
3.1
Pricing Units (Pips)
Understanding pricing units is key to making sense of forex trading.
1. Currency Pairs
In forex, you’re always dealing with a pair of currencies. The first is the base currency—the one you’re buying or selling. The second is the quote currency—the one you’re using to make that trade.
If EUR/USD is priced at 1.1000, that means 1 euro equals 1.10 US dollars.
2. Pips (Percentage in Point)
A pip is the standard unit used to measure price movement.
For most currency pairs, 1 pip equals 0.0001.
For Japanese yen pairs like USD/JPY, 1 pip equals 0.01.
So, if EUR/USD moves from 1.1000 to 1.1005, that’s a 5-pip increase.
3. Lots (Trade Sizes)
Forex trades come in different sizes, called lots.
- A standard lot is 100,000 units of the base currency.
- A mini lot is 10,000 units.
- A micro lot is 1,000 units.
- And a nano lot is just 100 units.
So if you buy one standard lot of EUR/USD, you’re buying 100,000 euros.
4. Pip Value
The value of a pip depends on your lot size, the currency pair, and the current exchange rate.
On average:
- One pip in a standard lot is worth about $10.
- In a mini lot, it's around $1.
- In a micro lot, it’s about $0.10.
This tells you how much money you gain or lose with every pip the market moves.
5. Calculating Pip Value
Here’s a simple formula you can use:
Pip Value = (Pip Size ÷ Exchange Rate) × Lot Size
For example, if EUR/USD is 1.1000 and you trade a mini lot (10,000 units):
Pip Value = (0.0001 ÷ 1.1000) × 10,000 ≈ $0.91 per pip
Options
3.2
Order Types (Options Trading)
1) Core Order Actions
These define what you're trying to do with the option:
- Buy to Open: You’re opening a new position by buying an option—either a call or a put.
- Sell to Open: You’re opening a position by selling an option contract (also called writing an option).
- Buy to Close: You’re buying back an option you previously sold to exit the position.
- Sell to Close: You’re selling an option you previously bought to exit the position.
2) Execution Types
These determine how your order is filled:
- Market Order: Executes immediately at the best available price. Fast, but you don’t control the price.
- Limit Order: You set the price you’re willing to pay or accept. It only executes if the market hits that price.
- Stop Order: Becomes a market order once the option hits a certain price—used to limit losses or enter on momentum.
- Stop-Limit Order: Similar to a stop order, but it turns into a limit order instead of a market order—giving you more price control.
3) Timing Instructions
These tell the broker how long your order should stay active:
- Day Order: Expires at the end of the trading day if not filled.
- GTC (Good Till Canceled): Stays active until you cancel it or it’s filled.
- FOK (Fill or Kill): Must be filled immediately in full or not at all.
- IOC (Immediate or Cancel): Fills as much as possible immediately, then cancels the rest.
4) Advanced/Conditional Orders
- OCO (One Cancels the Other): You place two linked orders—if one executes, the other is canceled.
- Bracket Orders: Combines a primary order with both a stop-loss and a take-profit order—great for managing risk and reward.
Options
3.3
What is Leverage?
1) Understanding Leverage in Trading
Leverage lets you trade with more money than you actually have in your account. It’s like your broker is offering you a temporary loan so you can control a larger position. This can increase your profits—but it also increases your risk.
2) How It Works
Let’s say you’re trading with 10:1 leverage. For every $1 you invest, your broker allows you to trade with $10. So, if you have $1,000 in your account, you can place trades worth up to $10,000.
To make this happen, you’ll need to open a margin account, where your broker holds a portion of the trade value as a kind of insurance or “margin deposit.”
3) Practical Example
Imagine you’re using 50:1 leverage. That means you only need $200 to open a $10,000 position. If the market moves just 1% in your favor, you’d make around $100—a 50% return on your original $200.
But if the market moves 1% against you? You lose $100—which is again 50% of your capital. That’s why leverage can be a powerful tool, but also a risky one.
4) Things to Keep in Mind
- The higher the leverage, the greater the potential risk.
- Brokers are often regulated in how much leverage they can offer—especially for retail traders in countries like Canada.
- Successful traders always use risk management tools, like stop-loss orders and careful position sizing.
Options
3.4
More Examples of Leverage Impact
Let's explore some more examples of how leverage can impact your profits—and losses.
Scenario 1:
1:1 Leverage (No Leverage)
- Your capital: $1,000
- Trade size: $1,000
- Pip movement: +50 pips
- Pip value: $0.10 (using a micro lot)
Result:
You earn $0.10 × 50 pips = $5 profit
You risked your full $1,000 to make $5—a safe, but slow pace.
Scenario 2:
10:1 Leverage
- Your capital: $1,000
- Trade size: $10,000
- Pip movement: +50 pips
- Pip value: $1 (mini lot)
Result:
$1 × 50 pips = $50 profit
Same 50-pip move now gives you 10× more reward—but risk is amplified too.
Scenario 3:
50:1 Leverage
- Your capital: $1,000
- Trade size: $50,000
- Pip movement: –20 pips (price moves against you)
- Pip value: $5 (half standard lot)
Result:
–20 pips × $5 = $100 loss
A small move against you just wiped 10% of your account. If the trade went the other way? That’s a $100 gain.
Takeaway
- Higher leverage boosts potential gains and magnifies risk.
- A small price movement can have a big impact—for better or worse.
- Risk management (like setting stop-losses and sizing positions carefully) is your safety net.