As a process of Forex risk management one may use a limit and stop orders to decrease the involved risk in trading. When placing a Forex Trading market order. Many experienced traders already know the levels at which they will want to exit the trade. The 24 hour nature of the Forex market makes it difficult for a trader to make timely trading decisions since large market moves may happen while he or she is away from the Forex Broker market Limit and stop orders automatically close out open positions when price reaches a certain level. It should be noted that the limit orders are designed to take gains on a position by closing it out at a predetermined Forex price. For a long positon, a limit order is placed above the current price. If a trader holds a short position, then a limit order will be placed below the current price.
A stop order may be used to minimize the losses. For a long position a stop order is placed below the current price. If a trader holds a short position, then a stop order will be placed above the current price. Also knoiwn as the stop loss order. Its purpose is to close out a position in which the market is moving against you limiting the losses on the trade.