EURUSD 1.1860 USDJPY 111.61 USDCAD 1.2371 EURCZK 26.031 USDCZK 21.944 EURPLN 4.2728 USDPLN 3.6032
EURUSD 1.1860 USDJPY 111.61 USDCAD 1.2371 EURCZK 26.031 USDCZK 21.944 EURPLN 4.2728 USDPLN 3.6032

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Learn the basics of financial markets

In MetaTrader 5 it is possible to define orders that close a transaction automatically when a specified positive or negative market scenario is fulfilled

Rule of thumb

The usage of automatic orders for the purposes of closing the transactions is an individual decision of each trader.

 

It is important to understand all the opportunities and risks associated with those types of orders

Some investors claim that it does not matter much when and how a position on a market is opened. It is all about the time and manner in which it is closed. As this statement can be a bit provocative, it is safe to claim that whenever the trader opens a new transaction, he/she should have at least a rough idea how it may end. Operating on financial markets is always associated with taking significant financial risks, especially using leveraged instruments such as CFDs. Those risks however could and should be managed.

 

The simplest tools designated to limit the potential losses and/or close a position at a predefined level are:

  • Stop loss order – automatically closes an open position once the market price reaches a predefined level. The Stop Loss order can be thought of as a negative scenario, as the price level in question is less favourable for the investor than the current market price. In short , it protects the position from incurring unpredictable losses.
  • Take Profit order – works in a similar way, and can be thought of as a positive scenario price level. It can also be set at  a more favourable price than the current market price. In short, it secures the profit (or lower loss), if only the market conditions allow that.

 

stop loss, take profit, orders

 

How do the stop loss and Take Profit orders work in practice? Let us assume that you have just opened a position on a chosen market. What are the problems you are facing?

 

It is important to understand that in certain market conditions, even the stop loss orders offer a limited scope of protection, as it is a case of an execution of the order  at the  time of the opening of a given market. If the market opens with a price that is less favourable for the trader than the stop loss level set, the order will be executed at the market price level, as the price requested is not available. This is a standard procedure for the financial markets. 

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