What Is the Difference Between Forex Orders, Trades, and Positions?

For someone with limited expertise of forex or trading in general, the terms order, trade, and position may all seem similar and appear to be the same thing. However, those of us who have traded previously know that there are certain distinctions between them.

They are all, of course, related to making a deal, but we will look at the minute variations between the three terms to ensure that you understand exactly what people are talking about when they use these terms.

Orders

Let us begin with orders. An order is simply an authorized command or instruction, and it is quite similar in trading because we are simply telling the broker what we want. Isn’t it simple? Not quite, because there are a variety of orders available, quite a few in fact, some of which are a little more sophisticated than others.

Market order: It is the most basic sort of order. This is you are informing the broker that you want to place a trade. For most brokers, this order would be instantly executed, and the trade would be entered at the current market price. This works for both purchases and sales.

Pending orders: These are orders that you enter but ask the broker to execute when the price reaches a certain level. There are several different order kinds that fall under the heading of pending orders. Let’s take a quick look at them.

Limit orders: They are pending orders with both sell and buy limits. The way this order works is that we, for example, wish to buy but the price is falling. We would place an order for a price lower than the existing value. A buy trade will be placed after the price has dropped to the level that we have set. The same is true for a sale. We place our order at a higher price than the current value, and if the price rises and exceeds our order price, we will execute a sell trade. These function nicely when placed on resistance or support levels where the price is expected to revert.

Then there are pending orders to stop entry. These work in the same way as well as the other way. The stop order is a market stop. A transaction will not be opened until the price hits that level, at which point it will be opened. So, it operates similarly to the limitations, except that when the markets are moving upwards and reach the stop entry level, a buy trade is opened in the hope that the price continues to climb upwards. The same is true for a sell; you position it below the current price in the belief that it will continue to decline after it hits the stop limit and the target price.

Trades

Let us now look at transactions. This is an easy one to explain. A trade is merely the act of placing and executing a purchase or sell order. It is now a trade once the order has been executed. transactions include both buy and sell transactions, with the former occurring when the market price is expected to rise and the latter occurring when the market price is expected to fall. You can execute numerous trades at the same time, and depending on the rule, you can execute both buy and sell trades on the same pair. In brief, a trade is simply an order that has been executed and is currently live by the broker.

Positions

Positions are a little trickier to explain, but they are an aggregation of all open trades at any given time. Your position is determined by your exposure to any given currency inside a market. So, let’s say we are trading the EUR USD currency pair, and we have a buy trade of 0.01 lots. That is the equivalent of a $1,000 purchase. We place another 0.01 lot trade, totaling 0.02 lots or $2,000. Our long position is now $2,000 in value. If we were to sell a 0.05 lot for $5,000, we would have 0.02 long and 0.05 short, for a total of 0.03 lots short.

Your position indicates how vulnerable you are to market changes. The more trades you have going in one way, the larger your position on that currency pair, and thus the more vulnerable you are to risk and exposure when markets move.

That is a brief description of what orders, trades, and positions are in forex trading. Hopefully, this has provided you some insight into their meaning and may have cleared up any doubt you may have had about these phrases.

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