Types of transactions on Forex
A private trader, trading on Forex, makes certain transactions. Any trade is opened, at this moment a certain Commission may be deducted from the trader's account, and it is also opened initially in a somewhat unfavorable position, with a current loss equal to the spread value.
Further, while holding a position, some expenses, Swaps for transferring the position to the next banking day may be debited from the account again. And then any transaction must be closed. At the same time, the trader can place pending orders to close the transaction. This is a standard trading scheme, which at the same time includes a relatively large number of types of Forex transactions.
Types of transactions in the direction of market movement:
- Buy, BUY, long, long positions;
- Deals for sale, SELL, short, short positions.
With purchase transactions, everything is relatively simple. We buy some asset cheaper and sell it more expensive. Standard scheme from real life. On the USDCHF pair, we could make a deal to buy from 0.95845, and when the price rose, close this deal at the price of 0.97715, earning on the growth of the price.
We have the opportunity to earn not only on the price increase, but also on its fall, making deals for sale. To understand this, let's look at the essence of trading operations. When opening a purchase transaction, we buy USD for CHF. But when we close the purchase, we actually sell USD for CHF. In other words, nothing prevents us from doing the opposite on Forex. Sell USD for CHF, and when the sale is closed, buy USD for CHF. The broker gives us the opportunity to actually conclude a contract to sell an asset at a high price, but we will earn on it if the price decreases, and we buy it at a cheaper price, while closing the SELL transaction.
The names of these types of transactions (long and short) came to Forex from the stock market. Initially, if the stock grew, it was stable, long, slow, long. And when problems started to appear in the company or in the market, the shares fell extremely quickly and sharply (short – short-term).
The decision on which type of trade to open is made based on Your trading system and its trading signals. Always keep in mind that no current movement can last forever. And if after a long uptrend you plan to open for purchase, for its continuation, then be careful, because the stronger the trend was, the stronger the correction will be. If the market is highly overbought, it makes sense to start working out sales from each subsequent price high. And with a high probability, the deal can become a "big short".
For long-term trading, it is necessary to take into account the accrual of Swaps when transferring transactions to the next day. And the SWAP data for buy and sell transactions will always be different.
Types of Forex transactions by execution time:
- Transactions with market, current execution;
- Transactions with deferred settlement.
Transactions with market execution are opened immediately on the market at current prices. This is convenient when we are in the market and trading. Forex gives us the opportunity to open trades at predictable prices. Let's say we believe that if the price passes above a certain value, it will continue its upward movement. To open such a deal, you need to place a BUY STOP order at the level that the price is predicted to go higher after passing. Or SELL STOP, if we predict a similar situation for a fall.
If we want to make a deal to buy at a better price than now, i.e. even lower or sell at a better price (higher) than now, we use limit trades. For example, we see that GBPUSD should grow. But we decide to open for purchase not on the market, but at a more favorable price from the "round" level of 1.33000, where the BUY LIMIT order is placed.
For effective Forex trading, you need to use all types of transactions, and not be limited to a small list. The market is diverse and, depending on the situation, it is necessary to correctly determine the optimal transactions, building trading structures.