Let's say you've decided you're ready to open or close a trade—how do you do that?

You'll need to provide your broker or trading provider with the details so they can buy or sell on your behalf. This is called placing an order.

What is an order?

An order is simply an instruction to buy or sell an asset.

There are different types of orders, allowing you to either trade immediately or wait for specific market conditions to occur.

Once you place an order, you can step back from trading and let the order be executed automatically in your absence. Depending on the type of order you choose, it can be executed automatically in the following ways:

Open a trade when you see that conditions are just right.

Secur your profits by closing the trade when it reaches your target level.

Minimize your losses by closing the trade when the price moves against you by a certain amount.

You'll learn how to choose the right order to do each of these things as we explore the different types in detail below.

Market Orders

If you simply want to close a trade immediately at the best available price, a market order is the most suitable option.

Provided the market is sufficiently liquid—in other words, if there are enough willing buyers and sellers at that time—your market order will be executed immediately.

The executed order is called the "executed" order.

It's important to understand that market orders can be executed at a price worse than the current bid/ask price. We'll explain how this happens later in this course.

Limit Orders

Sometimes, when you want to wait for the price to reach a more favorable level before trading, you'll need to use a limit order.

A limit order is an instruction to trade if the market price reaches a specific level that is more favorable than the current price.

Example: Let's say the GBP/USD exchange rate is currently trading at 1.5055. Your analysis suggests that if it rises to 1.5065, it's likely to fall again, so you decide to sell GBP/USD if it reaches 1.5065.

Instead of sitting in front of your screen watching the market, you can place a limit order (known as a limit entry order) to open a sell position if the price reaches 1.5065.

Two hours later, the market has indeed reached this level. Your broker executes your order, and you sell the GBP/USD pair.

After that, your trade proceeds as usual—if the GBP/USD exchange rate falls as you predicted, you make a profit. If it continues to rise, you incur a loss.

In addition to using a limit order to open a new position, you can also use it to close an existing position—protecting your profits if you are concerned that the market might reverse direction and wipe out your gains.