A limit order is an instruction given to a broker to carry out a trade at a certain level that is favorable. That is, in comparison with the current price of the market. You can either buy at a specific price below the current market price. You can also sell at a particular price above the market price.
It is advisable for forex traders to have a basic knowledge of the different types of limit orders as well as how they can get used to a trader’s advantage.
Forex Limit Orders
The forex market offers leverage that investors can use to make potential gains. These leverages may also lead to huge losses. Thus traders need to adopt effective trading strategies. The strategies adopted should include the use of the limit orders. These orders enable traders to have better management of their positions.
The limit order gets used in the forex market the same it gets used in the stock market. A trader uses a limit order to set a limit price. The lowest or the highest amount they are willing to buy or sell.
A trader uses a long position to set a limit order at a price above the current market price. He also sets a stop-loss order below the current market price. This gets called a sell limit order. This gets done to make a gain as well as cut potential losses.
A trader uses a short position to set a limit order at a price below the current market price. He also sets a stop-loss order above the current market price. This gets called a buy limit order. This helps to manage risk and make potential gains.
The limit order can get used by investors to manage their trade positions. Every investor has a different risk tolerance level. Thus every investor knows where and when to place the limit orders. An investor may decide to limit himself to a 10-pip loss on his market position. Another investor may choose to increase his level of loss to 40-pip.
There are no regulations on where an investor should put his limit order. Investors get advised to be lenient with their price limitations. When the price level gets too tight, there may be a high level of market volatility.
A limit order gets placed when a trader is about to enter a new position. It is also set when a trader is about to leave an open position. Limit orders should be placed close to the current market price of a currency pair. It should be placed at a particular price or higher, and the limit order will be executed when the market price reaches that set limit price or higher.
A buy limit order is placed when the current market price reaches the set limit price or is lower. The limit price must be lower than the market price for this order to get filled.
A sell limit order gets placed when the current market price reaches the set limit price or higher. The limit price must be higher than the market price for this order to get filled.
Limit orders get used to select a particular profit aim. A trader should know where he wants his profits before placing a trade. That is if the trade goes in line with his prediction. After seeing his limit order and stop-loss order, a trader can exit the market.
If a trader wants to go long, he will use the sell limit order when placing his trade. If a trader wants to go short, he will use the buy limit order when placing his trade. These orders can only accept price values that are in the profitable zones.
A good broker provides access to different forex orders for traders. This will permit a trader to choose prices for selling or buying in the forex market.
What is a Stop Order?
A stop order is also known as a “stop-loss order .”It is an order to sell or buy a particular stock when the stock price is at a certain level. This price gets referred to as the “stop price.”
When a stop price reaches the market price, it becomes the market price. Most traders place their limit orders here. This offers protection of trade from risks and losses.
The stop order is a kind of order that comes up when the market prices reach the stop price level. This can also start up a limit order.
It is used to enter new positions or leave current positions. The buy stop order gets used to buy a currency pair. That is when the set price reaches the market price or higher. The buying price must be higher than the market price. The sell stop order gets used to buy a currency pair. That is when the set price reaches the market price or lower. The selling price must be lower than the market price.
A stop-loss order reduces risk through the use of closure. It closes a position once it gets to a particular level, especially when a loss is about to get incurred. There are three types of stop-loss orders. These are the guaranteed stop-loss, basic stop-loss, and trailing stop-loss.
Pros of Stop Orders
The use of a stop order is a great way to manage positions. The primary key is to choose the right level time to carry out the stop order to manage your asset. This asset will fluctuate at different prices, but you will stay protected from risks that can bring you down.
These orders help your trade and protect you from risks that emanate from emotions. You can set your trade on an automated level. This will carry out the order without the influence of feelings at any time.
Cons of Stop Orders
One of the downsides of placing stop orders is that there is no guarantee that the stop will get executed. This occurs when the limit price is not met.
The constant price fluctuations of the market can also affect the execution of a stop order. Traders may buy higher or sell lower than they intended due to the market price fluctuations.
Another downside of the stop order is that the trader may end up taking huge losses. That is, after buying higher or selling lower than they intended to.
What is a Buy Limit Order in Forex?
Investors, brokers as well other forex traders have a price target. That is a price target for buying an asset. They set this, and it gets called the buy limit order. Here, investors know the amount they will pay for a stock or asset. So that they will not pay beyond the set price they are willing to pay.
A buy limit order gives the highest price an investor intends to pay for an asset or security. This buy limit comes into play when the price for security falls to the price stipulated as the limit.
In simple terms, a buy limit order can be a set price below the current market price. It can also be at the current market price. The buy limit gets triggered if the market price reaches this fixed price. The trader who sets a buy limit will be able to buy at a cheaper and specified price.
There is a guarantee that he will pay a specific price or less, especially if the buy limit order is ahead of the market gaps.
The buy limit offers a significant improvement in trading psychology.
Trading in forex requires patience and knowing the proper steps to take in the market. The best way to stay patient and wait for the right opportunity and set up to use a buy limit order right.
An investor carries this action out by allowing the price to reach the level he wants. There are better risks to rewards when this happens. It will prevent a trader from pursuing the market.
The buy limit order teaches a trader how to be patient. That is when he waits for the price level to reach his desired amount. It reduces the risks involved in trading if placed well.
Sometimes an investor may decide to use the buy limit order to get into an uptrend or pullback. The trader must know how to identify an uptrend. He must also be able to exercise patience while waiting for resistance. The buy limit must get placed close to the resistance or support level.
What is a Sell Limit Order in Forex?
Before selling an asset, the price target an investor chooses is his sell limit. That is, the price targeted for selling an asset or security. These give investors a level of control. The investor sets the price at which he is willing to place a sell trade. The sell limit ensures an investor does not pay more than his desired amount.
The sell limit gives the highest price an investor is willing to invest in a sell trade. This sell limit comes into play when the price for a security rises to the price stipulated as the limit.
In simple terms, a sell limit order can be a set price above the current market price. It can also be at the current market price. The sell limit gets triggered if the market price reaches this fixed price. The trader who sets a sell limit will be able to sell at a cheaper and specified price.
There is a guarantee that his trade will get initiated at a specific price or better. Especially if they sell limit order is ahead of the market gaps.
A sell limit teaches a trader patience. The forex trader has to wait for the price to get to that set point before getting his sell execution in the market.
Traders are also required to set a time duration for their sell trades. The two-time durations that can be set are the day trade and the good till canceled trades.
The duration of the day trade is till the next market day. The trade cancels if it does not get executed until the next market day.
The duration of the good till the canceled trade is indefinite. It lasts for a very long time. The trade can get placed anytime during this duration as far as it is active. The trade can get executed one week after the trade got placed. That is if the current market price reaches the trade limit price.
The good till canceled trades can get canceled only by the trader. It is canceled by the brokerage plat when it gets to its highest duration. The highest duration or period set by most brokers is one month.
The sell limit helps to improve a trader’s psychology in trading, and the sell limit involves studying and understanding the market’s movements. This is necessary to place the right forex order on trade. Placing a wrong forex order may lead to incurring trade risks. It may also lead to making huge losses.
Placing the correct forex order will help a trader cut losses and avoid trade risks. Traders get advised to set a stop-loss order to back up their sell limit order. The stop-loss order helps a trader to cut his losses further.
There are other special orders placed alongside limit orders. They include:
The Fill or Kill Order (FOK)
As the name implies, the order will get cancelled if it is not executed. When this order is placed, the buying or selling will be executed at once. If there is a delay in the execution, it gets canceled. If there is a delay in the execution, it gets canceled.
This order does not allow the partial execution of a trade. This order gets applied when trading large quantities of assets. That is when executing a market or limit order.
The Immediate Or Cancel Order (IOC)
This is an order place to buy or sell trade at once. It is also called the accept order. This order can get executed partially if all parts of the order cannot get initiated. Any part of this order that did not get initiated will get canceled at once.
The difference between the IOC and FOC is their partial execution. The conditions for placing the IOC varies based on the trade conditions. This order is simple and easy to place. The IOC gets applied when the trade involves a large number of assets. It also offers a better chance at making potential profits and minimizing losses.
The All or None Order (AON)
In this type of order, every part of the order gets executed or nothing at all. This is an order for buying or selling every part of an asset. If every part cannot get traded, the order will cancel.
Whenever a trader places an AON, it stays active utill it gets executed. That is, till every part of the order gets executed.
One of the downsides of the AON order is that it gets affected by inflation. When an order is not executed and still active, price inflation can affect it. This may lead to a huge loss of capital.
The Market On Open Order (MOOO)
This order gets placed and executed at the market start up price. That is, the price of the market when trade starts. This order gets executed when the market opens. It may also get executed some minutes after the market opens.
A trader has to place a buy MOO order just minutes before the market opens. In this way, the MOO order gets executed at the start of the market. Traders will place the MOO order when they predict a favorable market at the opening hour.
The Market On Close Order
This order gets placed and executed at the current market close price. That is, the price of the market when the trade ends. This order gets executed at the close of the market. It can also get executed some minutes after the close of the market.
A trader has to place a sell MOC order some minutes before the market closing time. This way, the trade gets executed at the closing market time. Traders who place this order predict a favorable trade at the close of the market.
Having a good understanding of the different kinds of forex orders is vital. This knowledge will enable a trader to use the right tools to achieve his trade intention.
The limit orders help a trader determine how he will enter or exit a market. It also helps a trader cut risks while making profits.
There are different types of orders: the most used ones are the limit orders and stop-loss orders. The market orders and the sell stop orders are also common among traders. A wrong use of these orders may lead to huge losses.
It is crucial that you understand and gather the suitable skills to get desired results, especially when it comes to orders and usage in the real market settings.
It takes continuous practice and study to get better at executing trade orders. Keeping it simple and less complex is the best way to start when ordering. Do not go into trade with real money yet until you are okay with the platform you wish to use.
Remember that all orders are different, and no one is better off than the other. The most important thing is executing it to perfection to get a good result. Do not be strict with the limitation of your prices. Ensure your price stops permit you to enjoy profits and protect you from huge losses.
As a beginner in forex, you have to know this as well. The buy limit and buy stop offers you the freedom to be in charge of the price level in the market. This is to succeed in trade and the forex market. To get the desired goal, one must endeavor to commit to every term and condition laid in the market.
The forex market is the biggest global market that grows daily. One cannot leave anything to chance. There are lots of platforms that can help you achieve your goal.
A trader makes profits as well as losses from different trades. Investors get advised to do research on various brokers before making investments. Most of them are fraudulent. It gets advised to trade with a broker that gets licensed and registered.
Frequently Asked Questions
What is a Sell Limit Order Example?
The sell limit order is the use of a selected price to sell a security. For example, a trader sets his sell limit at $10.50 for ABC. The current market price is $8.50. This means that the trade will only get executed when the market price gets to $10.50 or higher.
The sell limit order will not get executed at any price below $10.50. This is because $10.50 is the price the trader is willing to invest.
How Can a Trader Lose Money on a Sell Limit Order?
If the trade contradicts his prediction, a trader loses money on a sell limit order. That is if the trade rises instead of falls. If this happens, the trader takes a huge loss.
Is the Limit Order Safer Than the Market Order?
The limit order allows a trader to set the highest or lowest price he is willing to invest. That is, the amount he will buy or sell a security. The limit order assures a trader that his order will get executed if it gets to the market price.
There is no assurance that the market order will get executed even if it gets to the market price. An investor places an order which gets executed at the current market price.
There is always a threat that the market fluctuations may affect a market order, especially between the time the order gets received by the broker and the execution time.
What Can Stop the Execution of a Sell Limit Order?
The most basic reason a sell limit order will not get executed is limited volume. The sell limit order will not be executed if the available shares are limited, especially at the trader’s specified price.
This is very common when a large number of trades get traded on low securities. There has to be a trader willing to buy the securities at one end. And another trader is ready to sell the security at the other end.