What are Buy and Sell Limits in Trading?
When trading in the markets, people place pending orders. These are predefined price levels which signal a buy or sell order of an asset at some point in the future. Once the price of the instrument they are trading reaches a certain level, the order is executed. Next to Buy Stop and Sell Stop, two other popular pending orders traders place are the “Buy Limit” and the “Sell Limit”.
The Buy Limit is the price level set by the trader when they wish to buy their asset in the future. The key difference between a Buy Stop and a Buy Limit, is that the latter always infers a predefined price that is lower than the current market price, not higher. The same applies to Sell Limit, when the trader wishes to sell their asset in the future. The predefined price for the Sell Limit is not lower, but higher, than the current market price of the asset in question. Traders who set Sell Limits anticipate that the price of their asset will fall, usually after they have rallied (spiked up). In the case of Buy Limits, traders anticipate that the price of their asset will rise after they have declined.
Why use a Buy Limit or Sell Limit order?
This type of entry order can help you:
Control price: By setting a price level where the trade will execute, you can trade without having to constantly (consider synonym watch) the market.
Save time: The order does the waiting and allows you to focus on other things.
Save money: You can take advantage of good (consider a more specific adjective) prices that aren’t available when you’re physically at your monitor (computer screen?), giving you a better chance of executing at the optimal price.
What’s an example of a Limit Order in forex?
Let’s say EURUSD is trading at 1.1000 and you have an order to buy at 1.1009. With a Buy Limit in place, your order will not be filled unless the price reaches 1.1009 or lower. With a Sell Limit, the order will not be filled unless the price reaches 1.1009 or higher.
Can I cancel a Buy or Sell Limit order?
As with any standing order, you can cancel a Buy Limit or Sell Limit order at any time, as long as the order has not yet been filled.