The bargains, which are carried out by brokers for the clients, are subject to orders (warrants). The most simple exchange warrant is market (Market Order). It is the order on acquisition or sale under the prices active currently (at the market price). At purchase this order means the nearest price declared by sellers (Ask), at sale – the nearest bid (Bid).
Let’s distract for a minute from warrants and we will specify the following: we already know that in each point of time in the market exists two prices – a demand price (Bid) and offers (Ask).
How here is not to be confused? Under what price is to put the warrant? How is to calculate profit-loss? Fortunately, all is simple. In the first, it is necessary to remember a simple principle – the bargain is made always under price less favorable to the trader. That is, if the trader purchases, always at higher price, at the price of Ask, if sells – at the price of Bid. The same rule operates and at the established warrants. The warrant on purchase (it is not dependent on warrant type) is executed at achievement by the warrant of price Ask and the warrant for sale – prices Bid. In the second, the trader does not have necessity especially to think of it – modern trading terminals all these execute automatically.
And so, Market Order. It is obvious that use by the trader of such order opens ample opportunities of a manipulation for the broker. Simple analogy – you wish to exchange 100 dollars for other currency, but are forced to do it through the intermediary (broker). Then the market order will sound approximately so: “purchase currency for 100 dollars under the price what will be”. In this case you entirely trust in decency of the broker. The elementary fraud, which the broker can conduct, is to execute your warrant for a maximum price, and counter transaction – on minimum, having put a difference in the pocket. You also will not notice it. For this reason experts do not recommend to use a market warrant under no circumstances. It (a market warrant) is widely applied in the share markets and future, on Forex it is used very seldom. Instead of it is used its modified version – “inquiry of the quotation”.
The inquiry of the quotation is used for item opening, though it is not a unique method. Thus the trader informs the broker the name of currencies on which it enquires the quotation, and size of a lot, which he intends to make transaction. All this is necessary under the main cause – discrepancy of the price information and broker. The broker, in the answer, informs pair of the prices – Bid and Ask. The broker informs the price not instantly, after all it should check up, whether has the right the trader to work with such lot, then to communicate with the a market – maker and to enquire of it the quotation, to wait the answer and after that to inform the price to the trader. On the average on it leaves from several seconds about one half-minute. If more – it is better not to work with such broker or to use other warrants. Having received the answer to inquiry (by the way when the price sharply varies, the market is not stable, the broker can not give the quotation), the trader should answer – I purchase, I sell or – nothing (that means failure of item opening). After pronouncing by the trader of words I sell or I purchase the bargain it is considered made, the broker confirms with message that purchased it. All negotiations register by the broker in the tape recorder. Procedure at work through the trading terminal by means of the Internet becomes a little simpler, but the essence remains the same. Basically, the trader can enquire some time the quotation and refuse from making of a transaction, expecting more remunerative price, but some brokers limit this right (differently the broker appears busy with inquiries and other traders cannot phone him).
Before you make up your mind to make a forex investment or start forex trading yourself, better find a nice forex book and read more about forex market – this will save you from lots of troubles and traps.
