Loss orders are used on Forex day trading to provide a method of controlling losses that arise from fluctuations in prices. An order is an instruction for the purchase or sale on a Forex trading platform such as a currency exchange or stock market. These orders can be complicated or simple, and may be delivered to a broker directly or by direct online access. When using brokers, the orders generally are executed through their websites, usually through an electronic messaging system (EMMS). The order must be authorized by the broker through the use of an electronic transaction and credit card number. In some cases, third-party institutions provide funding or other forms of credit to facilitate the execution of the order.
When a Forex broker reaches the end-of-day or limit-date for the number of permitted transactions, he calls the investor and requests him to pay the full amount of his Loss Order on that day Loss Order
. The investor agrees and signs the document provided by the broker, indicating the number of shares he wants to sell or buy, and the amount he is willing to pay for such transaction. After receiving the confirmation of the loss, if any, from the investor, the broker executes the order. He then notifies the investor again, often through E-mail, confirming the loss and that the stop-limit has been reached.
A loss order can have several possible types. The most popular form is a “tied” loss order, which is executed when the market price suddenly fluctuates out of a trader’s expectation. A tied-loss order is usually placed against a specific time frame, such as the end of the trading day, or the end of a specific period, such as the end of one week or the end of a month. The trader can specify a maximum limit above which the trailing stop will not be triggered, thereby effectively avoiding any negative consequences from the market price movement.
The next type is what is called a discretionary loss order. When a trader executes a loss, instead of having the order executed within a defined period, he decides at the time of execution whether or not to buy or to sell, based on the information he receives. This decision can either be executed immediately, or on a later date. Most online trading platforms do allow traders to set up such discretionary orders using their trading platforms.
Another type of loss is the trailing stop loss. It is a type of stop-loss that is used in conjunction with a trader’s discretionary loss order. In a way, both the discretionary order and the trailing stop loss are designed to protect a trader’s actual losses in cases where the market rises before the specified level is reached, but then falls back down before the loss level is reached. Traders may use either order at any point during a trading session to reduce the risk of incurring a large loss in case of an unexpected drop in the market price.
Finally, traders may use what is known as a stop-loss order. A stop-loss order is used to limit the amount of loss, a trader will incur if the market rises before the trader’s specified exit point. This is implemented because certain traders desire to avoid incurring large losses during the trading day. Therefore, if a trader has a predetermined amount of money he intends to lose, he may set a limit above which the total loss will not exceed.
In addition to the three types of loss that may be incurred during a specific trade, there are also a few factors that can affect an order such as the quality of the broker. The quality of the broker will have a significant effect on the accuracy of a loss prediction. Most quality brokers will offer the option for traders to enter a custom loss profile. The custom loss profile enables traders to enter into an agreement with their broker that specifies the type of loss they would like to incur during each trade.
Regardless of the type of loss that is incurred during a particular trade, traders must be aware that these losses must be reported in order for them to remain within certain limits as per the regulations set out by the Commodity Futures Trading Commission (CFTC). Traders must ensure that they do not exceed the maximum loss level which is set out by the CFTC and they should also ensure that they do not enter into a loss agreement with their broker. All traders and those who use a trading platform need to be aware of the potential losses and this helps to ensure that risk management is improved.
