Buy limit is one of 4 pending orders that are extremely familiar to forex traders. If you clearly understand the strategies for placing buy limit orders, investors will reduce trading risks. From there, optimize profits. So specifically what is buy limit command? In what cases should this type of command be used? Let’s learn about this type of pending order with Learn Forex Trading through the article!
Order what is buy limit?
Buy Limit is a pending buy order, with the function of buying at a price lower than the current price. Traders will apply this type of order when they think the price will increase sharply in the future. However, usually before skyrocketing, the price will drop to a relatively low price range compared to the current price. Therefore, applying the Buy limit order helps investors buy at a cheaper price. When the price drops to the point where you placed the order, the pending buy order will automatically match.
Note: If you use a Buy Pending order, the trader’s account balance remains the same until the order is matched or the position is closed. On the contrary, the balance will change as soon as a market order is placed. what is balance? In forex, balance is the amount of money in a trader’s account, excluding profit or loss of open positions.
For example: The current price of the EUR/USE currency pair is 1.11. Even though you think that in the future the price of this currency pair will increase further, you still want to buy at a lower price. You don’t have much time to follow each moment to place orders. Therefore, you will place a Buy limit order at price 1.1. When the actual price drops by 100 pips, the long position will be automatically triggered.
See more: Successful what is forex exchange trading?
Advantages and disadvantages of what is buy limit order?
Buy Limit will become a powerful order, taking full advantage of it if the market follows the correct trend as analyzed by the trader. However, if used at the wrong time, it can be counterproductive. So what are the specific advantages and disadvantages of this type of order?
Advantages of Buy Limit orders
- The price point to enter orders accurately: Traders can analyze to find the most standard price point to enter the market.
- Find better prices: Traders always have the opportunity to buy assets at cheaper prices, especially when you see that every day the price increases, but there will be times when it decreases slightly. Therefore, placing a pending buy order will help traders avoid reeling from intraday price differences.
- Good for day trading style investors: Many people believe that if you want to profit from scalping, you should not use pending buy orders. However, that is not true. Pending buy orders help you capture the exact price point as predicted during the day, avoiding price discrepancies, even if very small, optimizing profits. You can learn more about day what is trading style or other forms of trading in other articles of Self-Teach Forex.
- Increase maximum profit: Buy limit order helps traders buy at a lower price than the current one.
- Save time: Traders only need to determine the correct buy point and place a pending order. The order is automatically executed when the price touches the order point. Traders do not have to watch prices or monitor the market constantly.
Disadvantages of pending orders what is the buy limit?
In forex trading, there is always risk. Therefore, pending buy orders are not always correct. This is the biggest limitation of the buy-limit order. The pending buy order is completed when:
- The asset price is almost reaching the bid price.
- Other investors sell at a price that matches the price point you are placing a pending order.
Therefore, investors may miss out on super bargain opportunities. If the market does not go as predicted, the market price will decrease but not reach the order point, or go against the trend.
When you see asset prices rising unexpectedly, there is a high possibility that the market will never return to your expected price point. The best solution is to buy at a reasonable price before it increases near the peak. At this time, use a market order (Buy) instead of a Buy limit pending order.
In what cases should you use the what is buy limit command?
Although this pending buy order has many advantages and is relatively effective. However, if you want a pending order to be successful and maximize its value, you need to determine a specific strategy. So when should I place a pending buy order? Below are cases where pending buy orders should be applied:
- When the market price reaches the support or resistance level, the price will often tend to bounce back.
- When market signals show that prices will continue to decrease. Expect the price to drop further and you want to buy at the maximum low price to get a good profit.
How to place a Buy Limit pending order on MT4 is extremely simple
On MT4, what is a simple way to place a what is buy limit order? You can place a Buy Pending order with the MetaTrader 4 platform with the following steps:
Step 1: Start MT4 on your computer, then log in to your account.
Step 2: Choose the currency pair you want to trade and clearly understand the trend (Buy limit order is only effective for currency pairs that are in an uptrend period, forecasting an upcoming correction).
Step 3: Press the F9 key or click “New Order” => The order window appears.
Step 4: In the Type section, select “Pending Order”. Continue to select and fill in the information in the fields below:
- Type: Select Buy limit.
- Volume: Enter the volume you want to trade.
- Stop loss: Enter the stop loss price.
- Take Profit: Enter the expected price to take profit.
- At Price: Enter the price you want to automatically trigger the buy order.
- Expiry: Enter the expiration limit of the pending order. At this point, if the pending order has not been filled, it will be canceled.
Step 5: Check the information again and then click “Place” to place the order. At this point, you will see the pending order clearly displayed on the price chart. In there:
- The green line is equivalent to the Buy Limit order matching price.
- The red line below is equivalent to the stop loss point – Stop Loss.
- The red line above is equivalent to the Take Profit point.
See more: Instructions for registering an XTB account
How to trade Forex effectively with what is buy limit order?
Besides determining the case for placing an order, you need to have a method and secret for a buy-limit order to be successful.
Place a pending buy order using the nail-spreading method
Spreading nails means you place sporadic orders in small volumes. One pip distance away, the trader will set a buy limit order. This way helps you make a moderate profit, without being too greedy. However, you may miss the opportunity to maximize profits when the market drops sharply.
Place a Buy Limit pending order in the sideway zone
In the sideway area, the price level is moving horizontally. Therefore, pending orders will be extremely effective, especially at support and resistance lines, you can place a buy limit order a small distance from the support line. The take profit point is below the resistance line. The stop-loss point is just below the support line.
Conclude
Above, Learn Forex Trading has shared with readers all the most important information about pending buy orders. Hopefully, you have clearly understood the concept of what is buy limit, how to enter orders effectively, and how to place pending buy orders. Combined with that, cultivate more practical experience with this type of pending order to succeed in forex trading.
FAQ
Order what is the buy limit?
A buy limit order is a pending buy order on the foreign exchange market, stock market, etc. In which, the trader will place an order to buy the asset at a price lower than the current price. When the actual price touches the bid point, the order will be matched.
Why should investors choose what is buy-limit order?
Investors use buy-limit orders to control the purchase price of an asset. If they believe the price will drop to a certain level before rising again, they can place a buy-limit order at that price. Therefore, this order will help them buy at a lower price than the current price or expected future price. Besides, pending buy orders will help them save time in continuously following the market.
How is a buy limit order different from a buy market order?
A buy limit order differs from a buy market order in that:
- A buy limit order requires a specific price or lower to execute the trade. The buy market order requires immediate purchase at the current market price.
- A buy-limit order provides control over the purchase price but does not guarantee that the trade will be executed if the price does not reach the set price. In contrast, a buy market order guarantees that the transaction will be executed immediately, but the price may be higher than the current price.
