Buy and Sell Limit

Traders utilize pending orders to automate transactions. When the price of the instrument being traded reaches the predefined level of the pending order, the order is executed automatically.

Key Limit Orders

Apart from buy and sell stops, the two most popular pending orders are the Buy Limit and Sell Limit.

  1. Buy Limit

    A Buy Limit is a predefined price set by a trader who wishes to purchase an asset in the future.

    • Price Condition: The price for a Buy Limit is always lower than the current market price.
    • Trader Anticipation: The trader anticipates that the asset's price will fall to this level before subsequently rising. (Example: A trader sets a Buy Limit at 1.1015.)

  2. Sell Limit

    A Sell Limit is a predefined price set by a trader who wishes to sell an asset in the future.

    • Price Condition: The price for a Sell Limit is always higher than the current market price. (This is the key difference when comparing it to a sell stop order.)
    • Trader Anticipation: The trader anticipates that the asset's price will rally to this level before subsequently falling. (Example: A trader sets a Sell Limit at 1.3015.)

Detailed Summary

Traders employ pending orders, such as Buy Limit and Sell Limit orders, to automate transactions based on predefined price levels. These orders execute automatically when the market price hits the specified level. A Buy Limit is set below the current market price, anticipating a future price dip followed by a rise, while a Sell Limit is set above the current market price, anticipating a price rally followed by a drop.

Key Takeaways

  • Pending orders automate transactions, executing automatically when the instrument's price reaches a predefined level.
  • The two most popular pending orders discussed are the Buy Limit and Sell Limit (in addition to buy and sell stops).
  • A Buy Limit order is set to purchase an asset when the price falls to a level lower than the current market price.
  • Traders use a Buy Limit when they anticipate the price will first fall, then subsequently rise.
  • A Sell Limit order is set to sell an asset when the price rises to a level higher than the current market price.
  • Traders use a Sell Limit when they anticipate the price will first rally to that level, then subsequently fall.
  • The difference in price condition (higher vs. lower than current price) distinguishes limit orders from stop orders (e.g., Sell Limit vs. Sell Stop).