A buy limit order is placed below the current market price and is executed once the price reaches the specified level. Traders use buy limit orders when they expect the price to drop to a certain level before reversing and moving higher.
A sell limit order is placed above the current market price and is executed once the price reaches the specified level. Traders use sell limit orders when they expect the price to rise to a certain level before reversing and moving lower.
Buy and sell limit orders allow traders to set precise entry points at desirable price levels. These orders are essential for traders who prefer to enter positions at more favorable prices, rather than waiting for market movements.
For example, if EUR/USD is trading at 1.1000 and you believe it will drop to 1.0950 before rising, you can place a buy limit at 1.0950. Similarly, if you expect EUR/USD to rise to 1.1050 before falling, you can place a sell limit at 1.1050.
Test your knowledge of buy limit and sell limit orders in forex trading with the following questions:
