Complete FX Trading Manual | Thorough Explanation of Order Methods, Lots, Pips, and Trading Timing
FX (foreign exchange margin trading) is a financial transaction where you buy and sell currencies from around the world to seek profits. However, when trading FX for the first time, you may have many questions such as “How do I place an order?”, “How do I decide the position size?”, or “What is a Pip?”.
This article provides an easy-to-understand explanation for beginners, covering everything from the basics to practical FX trading. Read this article to prepare for real trading and use it as a reference for making appropriate buy and sell decisions.
1. Basics of FX Trading: How Are Currencies Bought and Sold?
FX trading is conducted on “currency pairs.” For example, “USD/JPY (U.S. Dollar/Japanese Yen)” means buying dollars and selling yen (or vice versa).
The unique feature of FX is that you can aim for profits whether prices rise or fall.
- Buy (Long) Entry: Profit when the price rises
- Sell (Short) Entry: Profit when the price falls
Therefore, flexible strategies according to market movements are important.
2. Types of Orders and How to Use Them
There are several types of FX orders. Understand each type and use them appropriately according to the situation.
Market Order
A method to execute a trade immediately at the current price. It is used when the market is moving fast or when you want to take a position right away.
Limit Order
A limit order in FX is a method of placing an order by specifying a particular price. For buy orders, you specify a price lower than the current rate, and for sell orders, a price higher than the current rate. The order is executed only when the rate reaches the specified price, making it useful when you want to trade at your desired price.
Stop Order
A stop order automatically places a new or closing order when a specified price is reached. Unlike limit orders, it usually means placing an order at a price less favorable than the current one. For example, you might place a buy order above the current price or a sell order below it. While limit orders are “buy when it drops” or “sell when it rises,” stop orders are the opposite — “buy when it rises” or “sell when it drops.”
*In this related article, we thoroughly explain market orders, limit orders, and stop orders. Be sure to read it together with this one.
3. How to Decide Lot Size and Position Size
In FX trading, you need to decide how much currency to trade (= number of lots). A lot is a unit of trade, typically defined as follows:
- 1 lot = 100,000 units (Standard lot)
- 0.1 lot = 10,000 units (Mini lot)
- 0.01 lot = 1,000 units (Micro lot)
Key Points for Determining Proper Lot Size
- As a rule, keep risk within 1–2% of your account balance (margin)
- Estimate your stop-loss width and calculate the lot size as risk amount ÷ stop width (pips) = acceptable loss per pip
4. What Is a Pip?
A Pip is the smallest unit of price movement in an exchange rate. For example, if USD/JPY moves from “110.00 → 110.50,” it means a rise of 50 pips.
- In USD/JPY, the 2nd decimal place is 1 pip
- In EUR/USD, the 4th decimal place is 1 pip
Pips are used to calculate profits and losses and serve as a basic metric in FX trading.
5. How to Identify Entry and Exit Timing
To succeed in FX, it’s crucial to determine “where to enter (entry)” and “where to exit.”
■ Basic Entry Strategies
- Trend-following: Buy in an uptrend, sell in a downtrend
- Breakout: Enter when the price breaks out of a range
- Buy the dip / Sell the rally: Wait for a temporary pullback, then enter in the trend direction
■ Basic Exit Strategies
- Set target profit (limit) and stop-loss in advance
- Use “recent highs/lows,” “Fibonacci retracement,” or “moving averages” as reference for profit-taking
■ Caution Points
- Do not make entries or exits based on emotions
- Always set a stop-loss line in advance and trade with a plan
6. Actual Flow of FX Trading
- Select a currency pair to trade
- Check charts and analyze market conditions
- Set lot size, stop-loss, and target profit
- Choose an order type and place your order
- Manage trades according to your rules without emotional reactions
- Close the position using limit/stop order or manually
Summary: Build a Solid Foundation and Trade Strategically
FX trading is a financial market where you can grow steadily by learning properly and managing risk thoroughly. Understanding order types, position sizes, pips, and timing for buying and selling — and developing your own trading rules — is the fastest path to success.
If you are new to FX trading, start small and gradually establish your own style through practice.