Forex trading is a lucrative business that involves buying and selling currencies with the aim of making a profit. One of the challenges that traders face in the forex market is dealing with floating profits and losses. A floating profit or loss is the profit or loss that is generated by an open trade that has not yet been closed. In this article, we will discuss how to close forex floating P/L.
Understanding Floating P/L
Floating profit or loss (P/L) is the profit or loss that is generated by an open trade that has not yet been closed. When you open a trade, the value of the currency pair that you have bought or sold will fluctuate. If the value of the currency pair moves in your favor, you will have a floating profit, and if it moves against you, you will have a floating loss.
For example, if you buy the EUR/USD pair at 1.1200 and the price moves up to 1.1300, you will have a floating profit of 100 pips. On the other hand, if the price moves down to 1.1100, you will have a floating loss of 100 pips.
Closing a Floating P/L
Closing a floating profit or loss is an important aspect of forex trading. There are several ways to close a floating P/L, including:
1. Take Profit (TP)
A take profit order is an order that is placed to close a trade at a specific price level. If the market reaches the specified price, the trade will be closed automatically. The take profit order is used to lock in profits and close a trade when the market moves in your favor.
For example, if you buy the EUR/USD pair at 1.1200 and set a take profit order at 1.1300, the trade will be closed automatically when the market reaches 1.1300. This means that you will lock in a profit of 100 pips.
2. Stop Loss (SL)
A stop loss order is an order that is placed to close a trade at a specific price level to limit the loss. If the market moves against you and reaches the specified price, the trade will be closed automatically. The stop loss order is used to protect your trading capital and limit your losses.
For example, if you buy the EUR/USD pair at 1.1200 and set a stop loss order at 1.1100, the trade will be closed automatically when the market reaches 1.1100. This means that you will limit your loss to 100 pips.
3. Trailing Stop Loss (TSL)
A trailing stop loss order is a type of stop loss order that is adjusted automatically as the market moves in your favor. The trailing stop loss order is used to lock in profits and limit losses.
For example, if you buy the EUR/USD pair at 1.1200 and set a trailing stop loss order at 50 pips, the stop loss order will be adjusted automatically as the market moves in your favor. If the market moves up to 1.1250, the trailing stop loss order will be adjusted to 1.1200, which is 50 pips away from the current market price. If the market continues to move up, the trailing stop loss order will be adjusted accordingly.
4. Manual Closing
Manual closing is the process of closing a trade manually. This means that you will close the trade yourself by clicking on the close button on your trading platform. Manual closing is used when you want to close a trade immediately, without waiting for a take profit or stop loss order to be triggered.
Conclusion
In conclusion, closing a forex floating P/L is an important aspect of forex trading. There are several ways to close a floating P/L, including take profit, stop loss, trailing stop loss, and manual closing. Traders should use these tools to manage their trades effectively and limit their losses. It is important to have a trading plan and follow it strictly to avoid emotional trading decisions.
