CADET · Module F02: Your First Trading Decisions · About 25 minutes
Practice only: The examples in this lesson use imaginary prices and a demo account. Different products may have different order rules.
Your mission today
Understand what happens when you open a buy trade, what happens when you close it, and what the words order, position and sell mean.
1. The simplest possible buy trade
Suppose a pretend share is showing a buying price of $20. You believe it might rise, so in a demo account you buy one share. You now have an open position. That means your trade has started but has not yet ended.
Later, suppose you are able to sell that same share for $23. You close your position. Ignoring costs, you made $3 because you sold it for more than you paid.
But perhaps the price falls and you sell for $17. You lose $3 before costs. There is no button that can guarantee the direction you wanted.
Open: Start the trade. Close: End the trade. Position: The trade that is currently open. These three words are enough to follow the rest of this lesson.
2. What is an order?
An order is an instruction sent to a trading platform asking it to buy or sell under certain conditions.
A market order says: “Try to buy or sell now at the prices currently available.” The exact price may change before or while the order is filled, especially in a fast market.
A limit order says: “Only buy at this price or cheaper,” or “only sell at this price or higher.” It might not happen at all if the market never reaches your chosen price.
A stop order is an instruction that becomes active after a specified price level is reached. Depending on the order type and product, execution is not guaranteed at exactly that level.
You do not need to memorise every order variation today. Start by understanding now versus only at my chosen price or better.
3. What does “sell” mean?
The word sell can describe two different actions:
- You sell to close something you already bought. This ends a buy position.
- On some products, you can open a sell position, often called short selling. It generally benefits if the price falls, but loses if the price rises. This can involve special costs and risks.
Because those actions are different, never assume a SELL button always just closes your trade. Check whether an order will close an existing position or open a new one.
Cadet's first practice uses a simple buy-and-close example. We do not need short selling to learn how the buttons work.
3A. Two prices: Bid and Ask
At the same moment, a market can show two prices. The Bid is the price currently offered by a buyer: when you sell, you normally receive the Bid. The Ask is the price a seller is asking: when you buy, you normally pay the Ask.
Imagine a shop offering to buy your game console for $20.00, but selling the same kind of console for $20.20. The two prices are different even though you are talking about the same item. A trading quote can work like that.
Example on our imaginary screen: Bid = $20.00. Ask = $20.20. The gap is $0.20, called the spread. Real prices and the gap can change at any moment.
3B. The BUY trade: Ask to enter, Bid to leave
You want to buy one imaginary unit. The screen says Ask $20.20, so your BUY opens at $20.20 if filled at that quote.
If you immediately close the BUY, you sell it at the Bid, currently $20.00. You paid $20.20 and received $20.00. That is a $0.20 loss for one unit, before any other fees.
Remember: BUY = Ask in, Bid out. A real order may fill at a different price if the quote changes.
3C. A short SELL works the other way
You already learned that selling to close a BUY is not the same as opening a new SELL position. For some products, a new SELL position is called a short trade. Cadets only need to understand its price mechanics, not practise short selling yet.
In our pretend example, opening a short SELL happens at Bid $20.00. Closing that short requires buying back at Ask $20.20. If nothing else has changed, the difference is a $0.20 loss per unit before other fees.
Remember: Short SELL = Bid in, Ask out. Not every product allows short selling; rules and risks differ.
3D. Why a new trade often shows a small loss
A beginner often sees a small red number just after clicking BUY or SELL and thinks the platform is broken. Often it is simply the spread.
With Bid $20.00 and Ask $20.20, a new BUY would need to close at the lower Bid, while a new short SELL would need to buy back at the higher Ask. Both immediate round trips are $0.20 below zero per unit before other costs, even if the two quotes have not moved.
Sometimes a commission is charged as well. We explain that cost in F02.2. The displayed P/L may also move when prices change and does not guarantee a specific exit price.
3E. Find Bid and Ask on your platform
Open an MT5 demo account or look at a sample screenshot. Find the Bid and Ask columns in Market Watch or in the order ticket. Point to the number beside each label.
On many MT5 forex charts, the line and candles show the Bid price by default. That can make a BUY look as though it opens above the visible line, because a BUY usually uses the higher Ask. You can often enable an Ask price line in the chart settings, but chart displays and instruments vary.
Practice without ordering: If Bid is $20.00 and Ask is $20.20, say out loud which price you would use to open a BUY and which you would use to close it. No real money is needed.
4. Two ways a trade can be told to close
A take-profit instruction is an order intended to close a trade at a favourable price. A stop-loss instruction is intended to close it if the price moves too far against you. These are tools for planning, not guarantees. A gap or a fast market can lead to execution at a different price.
Imagine you buy at $50, set a take-profit level near $54 and a stop-loss level near $48. You have described two possible exits. One would be positive before costs; the other negative. Neither level guarantees that the actual fill will be the exact chosen price.
Don't choose your stop because you wish the loss were smaller. In later lessons, we will learn to connect the stop distance to the amount of money you can lose.
5. A four-step demo walkthrough
- Find the market symbol and confirm your account says Demo.
- Imagine you might buy one unit. Identify the current ask (buying) price.
- Before pressing anything, decide which price would make you close the imaginary trade.
- If you choose to practise clicking, use the platform's smallest suitable demo position and read the confirmation carefully. Then close it and inspect the result. No real money is needed.
Practice mission
Write the result before costs for one-unit buy trades:
- Bought at $30, closed at $35: +$5.
- Bought at $30, closed at $27: −$3.
- Bought at $30, still open at $28: −$2 shown as an unrealised result, but the final outcome may change until it is closed.
Now explain the difference between an order and a position using your own words.
Before your next lesson
You should be able to describe a buy trade from start to finish and identify a market order and a limit order.
Coming next: Why a tiny price movement can mean a small loss for one person and a much larger loss for another.
