Currency Deals: What Precisely Is A Limit Order?

There's two kinds of conditional order that you could place with forex trading trades: the stop loss (at times written stop/loss) plus the limit order. We tend to call these conditional orders since they'll not come into effect until specific conditions are met.

The stop loss is actually a well known instruction that controls the risk linked to a trade. Having a stop loss, you are saying to the broker, "In the instance that the price goes this far against me, I want out." Which means if you have purchased a foreign exchange pair hoping for an increase in price, but then the price drops, you will not see your total account balance wiped out. The stop loss will trigger and safeguard the majority of your cash.

The stop loss is actually a renowned instruction that regulates the risk linked to the trade. By using a stop loss, you're saying to the broker, "In the instance that the price goes this far against me, I want out." So in case you have bought a foreign currency pair hoping for a rise in price, but then the price drops, you won't see your entire account balance wiped out. The stop loss will do its stuff and give protection to the majority of your cash.

A limit order is equivalent but pertains to the opposite scenario, the situation where you have a winning trade. With a limit order, you are stating to the broker, "In the event that the price gets to this level, that's enough, I will close there and take it." The limit order will be activated if your pre arranged price is reached and the trade will be closed at that price.

A lot of traders are reluctant to use limit orders after they first start out. It seems counter intuitive. In the event the market goes your way, why would you need to close the trade? Wouldn't you want to hang on as long as possible to make the most profit from it?

So unless you have a method that is defined with very precise criteria to tell you when to close a trade, you will likely be better off if you use limit orders.

So unless you've got a system that is set up with very precise criteria to tell you when to close a trade, you will probably be better off if you use limit orders.

In many instances you will want the limit order to be further from the starting point than your stop loss, even after spread is taken into consideration. This will mean that you only have to score a 50% success rate to be in profit. Positioning the limit order at twice the pips of the stop loss, either before or after spread, might be suitable. On the other hand, this depends on your system. Never forget about the testing.

In many instances you will want the limit order to be further from the starting point than your stop loss, even after spread is considered. This will mean that you only have to score a 50% success rate to be in profit. Positioning the limit order at twice the pips of the stop loss, either before or after spread, might be appropriate. However, this depends on your system. Don't ignore the testing.
By Bryan Warren