What Is a Limit Order?
A limit order is an instruction to your broker to execute a trade only when the market reaches a specified, more favorable price. For buyers, this means a lower price; for sellers, a higher price. Limit orders can be set as good-till-cancelled (GTC) or good-till-date (GTD).
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Limit Order vs. Stop Order
- Limit Order: Triggers at a better price than the current market.
- Stop Order: Activates at a worse price (e.g., stop-loss).
Limit Order vs. Market Order
| Feature | Limit Order | Market Order |
|------------------|------------------------------|-----------------------------|
| Execution | Only at specified price | Immediately at current price|
| Control | High | Low |
| Use Case | Strategic entry/exit | Urgent trades |
How Does a Limit Order Work?
Automated execution eliminates the need for constant market monitoring, ideal for volatile markets.
Key Rules:
- Long Position: Set limit below current price.
- Short Position: Set limit above current price.
How to Place a Limit Order
- Open an account (live or demo).
- Analyze the market (technical/fundamental).
- Select the 'Order' tab in your broker’s deal ticket.
- Choose long/short, GTC/GTD, and set price.
- Confirm the order.
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Example of a Limit Order
Scenario: Shorting Alphabet (GOOGL) at £5/point.
- Current Price: 157.50
- Limit Order: 159.00 (sell)
- Take-Profit: 139.00
- Potential Profit: £100 ([159–139] x £5).
- Risk: Loss if price rises to 169.00 (£50 loss).
Benefits and Risks
Benefits
- Automation: No manual monitoring.
- Positive Slippage: Chance of better execution.
Risks
- No Execution: Market may never hit your price.
- No Loss Protection: Requires separate stop-loss.
FAQs
Q1: Can limit orders guarantee profits?
A1: No—they ensure entry at a desired price but don’t prevent losses.
Q2: How long do limit orders last?
A2: Depends on type: GTC (until cancelled) or GTD (expires on set date).
Q3: What’s the difference between limit and stop-limit orders?
A3: Stop-limit adds a trigger price; limit orders execute strictly at the set price.
Q4: Can I modify a limit order after placing it?
A4: Yes, most platforms allow edits before execution.
For deeper insights, explore our anchor resources above!
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