Let’s suppose you have a payment to make offshore, maybe to close or make a down payment on a real estate purchase in another country. You need to make the payment in a foreign currency, such as the US Dollar. You also read the daily and weekly financial press and expect interest rates in the United States, and therefore the value of the dollar, to drop as you believe economic data will be soft due to the Chinese economic slowdown. Therefore, you have a target in mind of where you want to buy the currency, somewhat lower than where it is trading now versus the Canadian Dollar. You don’t want to buy dollars just now, you want to wait until your target is met and then decide. So how do you do this?
One option would be to sit at the computer screen all day long, watching the numbers tick up and down. This doesn’t sound like a very attractive proposition, does it? A better option would be to use Agility Forex’s rate alert service. Here you can select the currency pair to watch, a level, a time period and you will be notified when your level is hit! Presto! No more watching the trading terminal!
So now that you are ready to trade, what type of order should you use? Let’s discuss that for a second. A ‘market order’ is simply an order that is transacted at the current market price, immediately. You send the order, and it’s done, just like that. No worries about never getting an execution. However, one thing to keep in mind, is that the actual execution price could be far from what you thought. If there is a spike one way or the other, or if the market is exceptionally volatile, you could get a bad execution, or a trade at a level that is unattractive to you.
How can you prevent this from happening? One option would be to submit a ‘limit order.’ For instance, you could say, sell my CAD at 1.25 versus the USD or better. This way, you know you will get at least a certain amount for your currency. What is the drawback to a limit order? Well, the market just may not ever get to your level. If there is a dramatic move, you could be left with CAD that you are trying to sell much higher than where the market actually is and be left holding the bag (CAD) in other words.
A third type of order is called a ‘stop order.’ Here, you set a price that if the market trades through, you get executed immediately at the next current market price. Again, you run the risk of not getting executed at all if the market trades away or a bad execution in a volatile market.
A fourth type of order is a ‘stop limit’ order. Here you have a level, that if the market hits, you then have a live limit order at your price. It’s just another variation on the types of orders we’ve already discussed.
As you can see, there is obviously more than one way to skin a cat, and execute your currency exchanges.
What you need to know is that at Agility Forex with our free demo account and free rate alert service you can see the market when you want and we can watch it for you while you are not around. Don’t waste your hard earned Canadian Dollars! Get the most out of your money with Agility Forex!