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What is a Buy Limit order in Forex and how to use it?
What is a Buy Limit order in Forex and how to use it?

 

To obtain the desired result from trading in the financial market, each trader needs to develop his or her own strategy. If you are not ready to be present on the platform all the time and do not want to miss potential profits, you need to find out what a Buy Limit in Forex is and how to apply it in your strategy.

An explanation of the term

A Buy Limit is a special type of pending order, which is set in such a way that allows you to purchase a certain asset at a price below the current level during a period of time. In other words, a trader expects to buy a currency pair cheaper than it is currently being traded to make more profit after selling.

 

Let us have a look at the following example:

At the moment, the EUR/GBP currency pair is showing an upward trend. The trader sees that there are all the preconditions for the price to reach the support line, after which there will be a retracement followed by a resumption of the upward trend. Accordingly, you should try to buy this currency pair when the retracement is formed. However, it is difficult to constantly monitor market conditions, especially since anything can happen in a split second. In this case, it is extremely important to understand what a Buy Limit in Forex is.

The current price of the currency pair is 0.7444. A pending order should be placed at the expected retracement level. If the price reaches the required limit, the broker will open a position even if the trader's terminal is closed at that moment.

 

Useful to know

While learning what a Buy Limit in Forex is, you will surely come across the term Buy Stop. As the name implies, the only difference between the two is that a Buy Limit is used to buy an asset at the right time, while Buy Stop suggests the future purchase of an asset at a price that is higher than the current one.

Let us consider the following situation:

Suppose a market participant believes that in the event of a sharp fall in the price, its growth will begin almost immediately, in which case the next reduction will start already from the level of the nearest local maximum. It is where a Buy Stop is set. Even with the terminal closed, if the price reverses and shows positive dynamics, the buy order will be executed.

 

Important to remember!

This information will help you better understand what a Buy Limit in Forex is:

 

  1. Set a Buy Limit order only if you expect the trend to reverse.
  2. The advantage of a pending order is that an asset can be bought below its current value even if you are absent.
  3. There is no guarantee that the price will fall to the expected level. Furthermore, even if the required retracement is formed, it is not a guarantee of the order being executed. (more on that below).

 

Why was the order not executed?

Sometimes it happens that a trade to buy a currency pair is not initiated although the value of the asset has dropped to the level at which a Buy Limit order is set. Such a situation can occur due to a number of reasons:

 

  1. Trading within the spread does not guarantee the execution of the order. For example, you have set a buy limit at $35. The quote later dropped to $33, after which it began to go up, but without your position. The reason for the non-execution of the order is that there only were trades at bid (sale price), and at ask (purchase price) slippage occurred. In other words, you just did not get a currency pair seller.
  2. A Buy Limit order may not be executed if you set a big bid/ask size. For example, you set a 5,000 share Buy Limit at $50, but the ask size shows that only 2,000 shares are available at a corresponding price.

 

 

Having fully understood what a Buy Limit in Forex is you will be able to apply such orders to your strategy and leave the terminal: the system will not allow you to miss out on favorable price action.

If you do not want to develop complex strategies or are afraid that your behavioral strategy will be a losing one, put your trust in proven robotic programs designed for algorithmic trading. These Expert advisors are designed by reputable traders and focused on increasing your profit non-stop. Using a robot will protect you from rash actions and allow you to increase your funds without any effort.


 

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