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Thursday, June 5, 2008

Stop If Bid and Stop If Offer Orders

Both stop-if-bid and stop-if-offer are stop orders used to limit trading losses resulting from market uncertainty. Stop orders are excellent tools against high price volatility and low market liquidity. Both stop-if-bid and sop-if-offer orders are common in forex market, but remember not all forex brokers allow these orders.

Stop if bid orders are practiced in rising markets. These are orders to close a trade when the bid price touches or breaches a specified level. Stop if bid orders are usually employed to buy a forex position once a certain level is broken. For example if you sell GBP/USD for 1.9815 with a stop-if-bid at 1.9820, the position will be closed when the bid price touch/breach 1.9820.

Stop if offer orders are practiced in falling markets. These are orders to close a trade when the offer price touches or breaches a specified level. Stop if offer orders are used to sell a forex position once a certain price level is broken. For example if you buy GBP/USD for 1.9815 with a stop-if-offer at 1.9805, the position will be closed when the offer price touch 1.9805.

Using stop-if-bid orders to sell forex positions and stop-if-offer orders to buy forex positions can cause problems like closing of positions in low liquidity causing temporary spread widening.

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