In this video, you will learn some important terms in forex trading. What is a stop-loss order? It is an order set by a trader to protect a position in case the market goes against the position. It executes automatically at the set level, the position is closed, and the losses are limited. A stop-loss is an important component of money management in forex trading. For long positions, the stop-loss is below the level of entry. For short positions, the stop-loss is above your entry position.
Take-profit order is an order that gets executed automatically when the price reaches a certain level, as set by the trader. Take-profit is important to capture your profit at a certain level. Take-profit is dependent on the trading strategy. Stop-loss and take-profit decides your risk to reward ratio. If your stop-loss is 40 pips and your take-profit is 120 pips, then your risk to reward ratio is 1:3.
Ask price is the price that a trader can use to buy a currency pair. Bid price is the price at which a trader can sell a currency pair. The difference between the bid price and the ask price is called as spread. You should look for a forex broker who offers low spreads on various currency pairs. You can display the bid and ask prices on your chart by means of horizontal lines on your MetaTrader platform.