Limit order

What is Limit order in forex and CFD trading

A Limit order is a Pending Order placed by a trader to execute a buy or sell transaction at a specified price or better, ensuring Price Certainty but not Execution Certainty. It is used to enter a trade at a more favorable price than the current Market Price, typically used for buying below the current market or selling above it. The Limit order remains dormant until the market reaches the designated Limit Price, and its status can be monitored in the Terminal or Pending Orders section of the trading platform. Utilizing a Limit order allows traders to manage Risk and Entry Cost by predefining the exact Execution Rate. You can find more financial terms in our forex glossary.

Key facts about Limit order

• Execution Condition: Executes only if the Market Price reaches the specified Limit Price, or a more favorable price (Better Fill).
• Price Priority: Prioritizes Price Certainty over Speed of Execution.
• Types of Limit Orders:
• Buy Limit: Placed below the current Ask Price.
• Sell Limit: Placed above the current Bid Price.
• Expiration Setting: Can be set with a Good Till Cancelled (GTC) or Good For Day (GFD) time in force.
• Slippage Behavior: Limit orders generally benefit from Positive Slippage; if the price jumps past the Limit Price, the order executes at the better price.
• Order Book Role: Limit orders add Liquidity to the market, as they are resting Bids or Offers.

How Limit order works in forex and CFD trading

A Limit order functions as an instruction to execute a transaction only when the market offers the desired or a superior price level.

The process follows these steps:

1. Placement Determination: The trader determines a specific future price (Limit Price) where they anticipate a Price Reversal or Pullback.
2. Order Submission: The trader selects the Pending Order type, specifies the Buy Limit or Sell Limit, defines the Volume, and sets the Limit Price.
3. Order Resting: The Limit order is placed on the broker’s Execution Server and remains inactive, visible in the Order Book (ECN model).
4. Activation Check: As the market moves, the broker continuously checks if the Bid or Ask price touches the specified Limit Price.
5. Execution Trigger: When the market reaches the Limit Price, the Pending Order is immediately converted into a Market order and executed at that price or better.
6. Confirmation: If executed, the trade opens at the guaranteed or better price, and the Pending Order is removed from the system.

Example of Limit order with a real trade

A trader believes EUR/USD will briefly pull back to a support level before continuing to rise.

• Inputs: Current Ask Price: 1.10500 Target Entry Price: 1.10200 (A Buy Limit is placed 30 pips below market) Position Size: 1 standard lot (100,000 units) Stop-Loss: 1.10000
• Execution Scenario: Order Placed: Buy Limit 1 Lot at 1.10200. Market Movement: Price drops to 1.10250, then falls quickly to 1.10100, before bouncing. Executed Price: The Buy Limit order executes at the guaranteed price of 1.10200 or potentially better, 1.10195, depending on the broker’s positive Slippage policy.
• Result: The trade is opened precisely at 1.10200, securing an entry that is 30 pips better than if a Market order had been used at the original price. The initial Risk is 20 pips (1.10200 minus 1.10000), equating to $200 risk per trade.

How Limit order affects your cost and risk

A Limit order significantly reduces the Entry Cost by guaranteeing a specific price, often allowing the trader to “buy the dip” or “sell the rally” more accurately than immediate execution. It reduces Risk per trade by improving the Reward-to-Risk Ratio.

Limit order compared with related concepts

Limit order vs. Market order

A Limit order is designed for entry at a price superior to the current market, prioritizing price over execution certainty, whereas a Market order executes instantaneously at the current best price, prioritizing certainty of execution over price.

Limit order vs. Stop order

A Limit order is always placed to obtain a Better Price (Buy Low, Sell High) and is used for Reversal or Pullback entries; in contrast, a Stop order is placed to obtain a Worse Price (Buy High, Sell Low) and is used for Breakout entries or closing Risk Management (Stop-Loss).

Broker differences in Limit order across the industry

The major points of variation concern the Minimum Distance requirement and how the broker handles Positive Slippage.

How to verify Limit order on your trading platform

Verifying a Limit order involves ensuring it is correctly placed and set to the desired Expiration Condition.

1. Open New Order Ticket: Use F9 or click the New Order button on the trading platform interface.
2. Select Pending Order Type: Change the order type from Market Execution to Pending Order (MT4/MT5).
3. Choose Limit Type: Select either ‘Buy Limit’ (below market) or ‘Sell Limit’ (above market).
4. Input Price and Volume: Enter the specific Limit Price and the required Position Size (Volume).
5. Set Expiry Date (Optional): Define the Expiration time if GTC is not desired.
6. Place Order: Click ‘Place’ and immediately check the Terminal Window.
7. Verify Placement: Ensure the Order appears under the Trades tab with the Type listed as Buy Limit or Sell Limit.
8. Sanity check: A Buy Limit order must show an entry price lower than the current Ask Price, and a Sell Limit order must show an entry price higher than the current Bid Price.