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When should set a Buy On Stop limit order?

When should traders place a Buy On Stop Limit Order is an important strategic decision in forex trading. This method is often applied when investors expect the price to increase after surpassing a specific level. But they want to make sure to buy only when the market reaches a nice price. Join Learn Forex Trading to learn more specifically about what the buy-stop limit is today!

What is a Buy On Stop Limit Order and how to use it?

Stop Limit orders are a popular risk management tool among the trading community. In addition to helping minimize risks, traders can also maximize profits when using this type of order. This article will introduce the concept of orders related to the Buy Stop Limit, its strengths, and limitations. To provide a comprehensive overview of how to effectively apply this type of order in a trading strategy.

Definition of buy and sell orders in Forex

First, to understand Buy on stop limit order, we will go through the definition of buy and sell orders in forex first so that new traders can understand.

In foreign exchange (forex) trading, “buy” and “sell” orders are the basic actions that investors perform to participate in the market. Here are the definitions for both command types:

A buy order is a decision to buy a currency pair in the hope that its price will increase in the future. When you open a buy order, you simultaneously buy one currency and sell the other.

A sell order is a decision to sell a currency pair with the expectation that its price will decrease in the future. When you open a sell order, you simultaneously sell one currency and buy the other.

Note that in forex, you always buy one currency pair and sell another. Because the market is always a confrontation market between two currencies. Each buy or sell order will involve buying or selling the first currency of the pair and executing accordingly on the second currency of the pair.

Definition of buy and sell orders in Forex
Definition of buy and sell orders in Forex

Difference between market order and pending order – Buy Limit and Buy Stop order

Buy stop order is a type of order in forex trading. Often used when investors expect the price to increase after passing a key level. For example, when the market is consolidating. Investors predict that if the price touches a specific level. A bullish signal may appear. Therefore, they can place a buy stop order at this price to open a buy position when the price touches that point.

On the contrary, the Buy limit order is often used when investors expect a quick reversal after a falling bottom. They then want to enter the market when the price surpasses the established level.

In another example, an investor wants to buy Apple stock at $115. But the current price is $120.70. In this case, a Buy limit order can be placed to open a long position when the price touches or falls below $115. Keep prices high so trading can be profitable.

See more: The secret to success with sell Stop limit orders

How to place a Buy on Stop Limit order in MT5 software?

Make sure you check and confirm the correct parameters and prices to avoid unexpected errors during the transaction process.

The method of entering forex orders is super simple

To place a Buy on stop limit order  in the MT5 platform, you can follow these steps:

Step 1: Open the “Place Order” window by double-clicking on the currency pair you want to trade.

Double-click on the currency pair you want to trade
Double-click on the currency pair you want to trade

Step 2: Select “Pending Order”.

Step 3: Select “Buy Stop Limit”.

Step 4: Enter the desired Buy Stop Limit price. Note that the “Buy Stop” price will be displayed in the “Price” section.

Step 5: Enter the Buy Limit price. Please note that the “Buy Limit Price” will display as “Limit Price”.

Step 6: Click “Place” to place a Buy on stop limit order.

How to place an order
How to place an order

How does the Buy on Stop Limit order work?

Set a Buy Stop price: Enter the price you want to set for the  Buy Stop order. Remember that this price needs to be higher than the current market price. This is the point where you predict the price will increase, and you want to enter the market at this price. Note that in MT5, the price to open a Buy order is still the ASK price.

Set a buy-stop price
Set a buy-stop price

When the market price now reaches the Buy Stop point: The Buy Limit order will automatically activate at the price you have set. Make sure you buy in at your desired price.

When the market price now reaches the Buy Stop point
When the market price now reaches the Buy Stop point

Conditions for activating the Buy Limit order: The Buy Limit order will only activate when the market price touches the Buy Stop point. In case the price does not touch the Buy Stop point. Buy Limit orders will not execute, keeping this order triggered only under certain conditions.

Command activation conditions
Command activation conditions

The purpose of using a Buy Stop Limit is to place a Buy Limit order automatically when the condition of touching the Buy Stop point is met.

Besides the Buy on Stop Limit order, what other types of pending orders are there?

Let’s learn about other types of pending orders for more information when trading:

4 basic types of pending orders for buy and sell orders in forex

Buy Limit Order:

Set to buy when the market price reaches a lower price than the current price. This order is often used when traders expect the price to decrease before increasing again.

Sell ​​Limit order:

Set to sell when the market price reaches a higher price than the current price. Traders use this order when they expect the price to increase after a decrease.

Buy Stop order:

Set to buy when the market price reaches a higher price than the current price. This order is often used when traders expect the price to increase sharply after surpassing an important price level.

Sell ​​Stop order:

Set to sell when the market price reaches a lower price than the current price. Traders use this order when they expect the price to drop sharply after surpassing an important price level.

Types of pending orders sell stop buy stop help traders make automatic transactions. When the market price reaches the desired range. The choice between pending order types depends on different trading strategies.

See more: Instructions for opening an ICMarkets account

Advantages of stop limit order

 What is the automatic order matching method through the Buy on Stop limit order? How many important advantages does it bring?

Automatic order matching: Allows automatic activation of buy or sell orders when the price reaches the stop price, reducing the need for constant market monitoring and manual order execution.

Save time: Not having to constantly monitor the market saves you time and effort. At the same time, reduces the pressure of having to manually monitor prices.

Limit risk: You can pre-define stop and limit prices. Helps limit the maximum amount of risk you will accept in trading.

Optimize profits: Stop Limit orders help you take advantage of maximum profits when the price approaches the stop price you have set.

Limit psychological pressure: Using the Stop Limit order helps eliminate some of the psychological pressure when having to decide to buy or sell at a specific time.

Easily control the expected price: You can easily control the price at which you will enter the market by determining a stop price that you feel comfortable with.

Advantages of stop limit order
Advantages of stop limit order

What are the disadvantages of the Buy on Stop Limit order?

Although Buy on stop limit order  offers many advantages, there are also some disadvantages:

Possibility of non-fulfillment: Stop Limit orders may sometimes not be executed if the price does not reach the stop price you set. Leading to the order never being activated and executed.

Risk of price slippage: In highly volatile market conditions, the actual price may exceed your limit price. This causes the order to be executed at a price higher or lower than the level you set.

Stop Loss sweep risk: Some investors may create fake orders using Stop Limit orders. This may lead to a Loss sweep of other investors.

Experience required: Using Stop Limit orders requires a high level of understanding and skills in the market and technical analysis. Therefore, it is not always suitable for new traders.

Conclude

Traders often consider using Buy on Stop Limit orders in certain situations. For example, when they expect a strong rally after the price surpasses a key level. To optimize efficiency, traders should clearly understand their strategy. At the same time, monitor and adjust orders based on price fluctuations with Learn Forex Trading.

FAQ

How can I determine the optimal buy point using Buy on a stop-limit order?

Observe the chart and place a Buy On Stop limit order at a price level where you believe the price will increase after passing an important threshold.

Why can using Buy an on-stop limit order help optimize profits in Forex trading?

Buy On Stop Limit order helps you enter the uptrend at the correct price. Take advantage of high profits when the market moves in the predicted direction.

What risks are there when using Buy on Stop Limit orders and how can they be minimized?

Risks include order failure or price slippage. Minimize by determining prices carefully and monitoring the market to adjust orders when necessary.

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