Buy Limit vs Sell Stop Order in Forex: What’s the Difference?

The forex market can get referred to as an exchange market. This is a place where traders predict to either buy or sell currencies. It is the biggest liquid asset market in the world. The forex market is always very active and its price quotes change on a regular basis. One of the best aspects of this market is that it has no physical headquarters. Traders from anywhere in the world can partake.

Trading on the forex market gets done online through a series of connections. These connections get made through trading terminals and computer networks. The forex market can get traded on platforms offered by brokers. These platforms link traders with the direct forex market. There are so many forex orders that can get used to minimize and avoid losses.

What is an Order in Forex

An order is a proposition made through a broker. This proposition gets made to either close or opens a trade transaction. That is if the directives specified by a trader are satisfactory. This means an order is a trader’s capacity to enter or leave the trade in the forex market. There are three basic types of orders in the forex market. The market order, the limit order, and the stop-loss order.

The market order is that which gets executed at once. It gets executed against the price set by the broker. The price may vary between transactions. For example, if the bid price for EUR/CAD is 1.3669 and the asking price is 1.3678.

A trader who wants to buy the EUR/CAD would buy it at 1.3678. The trader only clicks on the “buy” option. His buy order will get executed at once at that price.

The limit order is that which buys or sells an asset at a particular price. The buy limit order can get placed at a specified limit price. It would also be placed at a price lower than the limit price. The sell limit orders get placed at the specified limit price and higher.

For example, a trader decides to buy a stock at a particular price. The bid price he is willing to invest is $20. The broker would submit a limit order of $20. The order would only get executed if the price of the stock is exactly $20 or less.

The stock order can also get called a stop-loss order. This is an order that buys or sells an asset. That is once the price reaches the asking price in the market. The asking price of an asset gets known as the stock price.

The stop order becomes a market order once the asking price of an asset reaches the stop price.

What is a Buy Limit in Forex

A buy limit order is an order placed to buy a specific asset. The assets can get bought at a specific price or less. This order enables traders to restrict the amount they pay for the asset. This means that the buy limit order gives traders control over the buy price of an asset.

The buy limit order has an upside during market volatility. This is when the price of assets is likely to trade at a higher price value. The trade price gets insured to not be higher than the set amount in the buy limit order. The order will not get executed if the asset does not fall to the set price or lower.

The buy limit order lists out the highest price the trader is willing to spend on an asset. The buy limit order is executed only when the price of an asset falls to the set price or below it.

What is a Sell Stop Order in Forex?

The sell stop order is that order used when selling. It is different from the buy limit order. This is because it has a stop price that initiates the execution of a market order.

Sell stop orders consist of a fixed stop price. In this order, traders choose the sell stop prices at which they wish to sell. The market gets executed only if the stock market price moves to the stop price. They also include a slippage in their operation. This is because there is always a marginal discrepancy. This is always between the following market execution and the stock price.

Trading platforms only allow the sell stop orders to get initiated for one reason. That is if the price of the stock is below the current price of the market for a buy trade.

Due to this, stop orders get used more for hedging strategies and marginal trading. They limit the loss rates made on these trades by stopping the trade at a certain level.

When a trader is using a margin, he may use the sell stop to execute a short sell. The sell stop gets used to manage already made profits and limit losses.

For example, a trader buys a stock at $45 for a share. And he is willing to make a loss of $5 per share. He then places a sell stop trade below the level of $40 a share. He can place it at the level of $39.50. He should then start the sell stop order. This trade will get executed at the next available market.

How the Buy Limit Order Works in Forex

A buy limit order gets executed when the price of an asset gets transacted at the price specified in the order. It can also get executed when the price of an asset gets transacted at a price below the specified price.

Traders get required to select between a limit order or a market order. This gets done when placing trades with the buy limit order. A trader who selects the limit order must specify a limit price.

The buy limit order is not assured to get executed if the asset trades at the specific limit price. Investors must set the time frame they will be willing to keep the limit order active. This gets done because the execution of the limit order is not assured.

Setting a “day trade” order cancels the active trade if it is not executed till the next market. Setting a “Good Till Cancelled” (GTC) order will leave the trade active for a very long time. That is whether it gets executed or not.

Most brokerage platforms have a duration period for GTC orders. Some of these platforms set the duration period at one month. The GTC can get executed after many trading days when it gets to the set price limit.

Some of the advantages of the buy limit order include:

The buy limit order gives traders a level of control. That is, it controls the amount they spend on an asset. Using a buy limit order gives a trader guarantee.

This means that the trader is sure to pay only a specific amount for an asset or even less.

The buy limit order allows investors to profit from the price gaps. Especially the gap that took place during regular trading sessions. For example, a trader places a buy order at $3.40. The trade will remain active even when the order is not executed during a trading day.

The trade will still get executed even if the order falls to $3.20 the next day. The trader will also gain from the price gap down. This is because the order had already gotten placed before the fall.

The buy limit order is also very helpful in times of market volatility. That is when the price of an asset is likely to have a higher price value.

A buy limit order can also fall lower than the limit price. This will happen when the price of an asset falls during pre-market or after-market hours.

The Buy Stop and the Buy Limit in Forex

What is a Buy Stop

The buy stop order tells a trader when to buy an asset. This is especially when the price of the asset gets to a certain amount. This order becomes a limit or market order when it gets to that amount.

This order can get used on derivatives, stocks, forex, and other trade instruments. This order gets seen as a tool that protects traders. It protects traders from potential losses. The losses may get encountered in an uncovered short position.

A trader opens a short position when he predicts the fall in the price of a security. When it falls, the trader may buy cheaper shares and make profits. The profit gets made between making a short sale and purchasing a long position.

A trader can protect his trade against a rise in the value of an asset. This gets done by placing this order. It covers the short position at a price value that resists the losses.

This order can get called the stop loss order when it gets used to resolve short positions. A short seller may either place this order at a strike price or stop price. This can get placed lower or higher than the opened point of the short position.

A trader can place this order below the original opening price. This gets done if the price declines. The trader would want to protect his profitable position. He protects this position against sudden upward movements.

Some of the advantages of the buy stop trade include:

The buy stop is the best for detecting a breakout trade before it occurs. Traders can make big profits from this type of trade. That is if the price moves towards the direction of the trader’s desired price point.

One of the downsides of this trade here is the risk may be too much to bear. The upward and downward movement makes it almost impossible to enter this type of trade. The trader may place a trade after the trading time has already gotten exhausted.

The Buy Limit

The buy limit is a price level a trader sets when he wants to buy an asset in the future. There is a difference between the buy limit and the buy stop. The buy limit always places a price lower than the price of the market. Traders who set the buy limit predict the rise of their asset after it has fallen.

The buy limit helps to control the price of an asset. This gets done by setting a price level for the execution of a trade. A trader can place his trade without always watching the market.

The buy limit helps the trader watch the market and place trades. This saves time and money for the trader and allows him to invest in other areas.

Some of the advantages of the buy limit include:

The buy limit offers traders the opportunity to buy at their preferred prices. Unlike the stop order or the market order that gives a specific price value or lower.

The buy limit can also get used to place trades going in the direction of a breakout.

One of the downsides is the price of such a trade will not reach the desired price point of the trader. This can make a trader miss a good trade opportunity if the trend of the market works against him.

The Buy Stop Limit Order

This is almost like the stop-loss order. The only difference is there is a limit to the price they will get executed at. The two prices in a buy stop-limit order are the stop price and the limit price.

The stop price converts the trade to a sell order. The sell order turns to a limit order that can get executed only at the limit price and in some cases, even more. There is no assurance that the order will get executed. Especially when the stock price keeps fluctuating very fast.

The buy stop-limit order gets used when the price of an asset falls below the limit price. Especially if the trader does not intend to sell at a low price. He waits for the price to rise above his limit order.

Assuming an investor cancels his limit order if the stock price falls lower than the limit price. This is because the trade gets placed to limit the loss during the price drop. The traders wait for the price to go back up and then sell. This is a stop-limit sell order example.

Stop limit trade orders get placed more on short sales. That is when an investor is willing to take a risk and wait for the fall of an asset. This gets done when the initial buy was not made at a limited price or higher.

Sell Stop vs Sell Limit

A sell stop or a stop sell gets used when selling. It is very different from the sell limit. It has a stop price that initiates a market order.

A stop sell order has a specific stop price level. A trader selects a stop price to sell at. If the market moves in favor of the stop price, then a market order gets executed.

The stop sell order may have slippage since there is a marginal discrepancy. This exists between the stop price and market price execution.

Most brokers allow the stop order to get initiated. This happens if the stop price is lower than the market price for a sell trade. Also, it is higher than the current market price for a buy trade.

The stop order gets used more for advanced trading of margins and hedge strategies.

A sell limit or limit stop will only execute a trade at a particular limit price and higher in some cases. The sell limit allows a trader to choose a particular price.

Buy Limit vs. Buy Stop

The buy limit is an order to buy an asset at a particular price or below the price. This gives traders control over the amount they pay. Traders who use the limit order get assured of making purchases at a particular price or less.

The price used in a buy limit gets assured, but the trade execution is not assured. If the asking price is at the specified limit or lower, it can only be executed. A trader misses the opportunity to trade if the asking price is not up to the limit price and lower, depending on some factors. 

The buy limit gets used more by investors who predict the fall of an asset price value. If the market price goes up, a buy stop order should be used instead.

The buy stops or stop-limit buy uses the limited orders and the stop in its execution. A trader has to choose two price points to use the buy stop. The first price point gets called the stop. This marks the beginning of the trader’s selected target price. The second price point gets called the limit price.

This is the outer limit of a trader’s selected target price. A trader must also set a time frame for the execution of the trade.

When a stop price gets reached, the stop-limit order becomes a limit order.

This limit order is executed at trader’s selected price or higher. The main benefit of the buy stop is that it gives traders a level of control. The trader gets to decide the amount they wish to spend on an asset.

The Difference between a Buy Limit and a Sell Stop

The different order types and methods of execution are the key difference. A trader must first understand the difference between a limit order and a stop order.

The limit order gives a specific price for an order. It also executes the order at that particular price. The buy limit executes the trade at the particular limit price and lower. The sell limit orders execute a trade at a particular price or higher. The limit order specifies the price at which it can execute a trade.

The stop order consists of a particular limit used to trigger a trade. If a stock price gets to the limit price, the trade will be executed at the next market price.

A stop order gets used more for hedging and margin trading. It has its own limitations in the price entry. The buy stop must consist of a price that is above the market’s current price. The sell stop must consist of a price that is below the market’s current price.

The buy stop is then executed during the next market price when it reaches the buy stop price limit. The sell stop is then executed during the next market price when it reaches the sell stop price limit.

The buy stop gets used more for closing the positions of short stocks. The sell stops get used more to stop losses encountered in a trade. This order aims to limit the losses made on the trade. It should be one of the risk management tools a trader should use.

Conclusion

The forex market is one of the largest markets in the world. Financial instruments on the forex market have very high volatility and liquidity ratio. Due to this, risk management is vital. Risk management minimizes the losses that can get made on a trade.

There are so many forex orders that can get used to minimize and avoid losses. The stop-loss order is placed to exit a market when the price level is set at a certain limit. It is mandatory on the forex market. It gets used to exterminate external factors that may lead to a huge loss.

The limit order gets placed to buy or sell an asset at a particular price the trader chooses. This order gets used to buy and sell currencies. The currencies traded can be above the limit price, in other cases, it will be below it. The purpose of the limit order is to avoid sudden fluctuations in the market price.

The market order gets placed to enter or exit a trade after making the desired profit value. This type of order either leads to profits or a huge loss. The trader should know the type of strategy to use when using the market order. This order may lead to gaining or losing pips. The trader gains pips if the prediction and order go in his favor. He takes a huge loss if the trade goes contrary to his prediction.

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