HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

Limit Order vs Stop Order: an Overview


A trade order is a request that a trader places on a marketplace or any online investment intermediary (like a broker) to trade on some asset. This is the basis. Without understanding its essence, you will not be able to trade. In this article, we are going to consider three principal types of orders for stocks, currencies, and commodities that allow you to define the particular terms: Stop, Limit, and Stop Limit orders. We will tell you the difference between them and the way they should be used.

Besides, beginners will find a lot of useful information in our analytics section, including the glossary that you should read before you learn how to open or close an order. So, let's start!

Stop Orders

Stop orders come with the specified price for the asset, which is not available at the moment. It means that a broker will buy or sell an asset once its price reaches a predetermined level. You may confuse a Stop Loss order used to close a losing trade with a Stop order used to open a trade. Once the price of the order is available, the order is triggered. All that you are expected to do is to mention a stop price. For instance, it is equal to $500. When it is met, the order will be executed at any market price. If there is no asset at that price in the market, the order will not be executed.

You can use a Stop market order to buy or sell an asset. The Buy Stop order is executed at a stop price exceeding the current market price. The Sell Stop is executed at the price a trader has specified below the current market price. Such an approach allows choosing the best entry level and buying or selling an asset when the price is breaking a resistance or support levels.

How do you use Stop Loss orders?

As we have said, Stop Loss orders are commonly used to prevent losses on security positions. Let’s look at an example showing how to place a Stop Loss order. You may set a Stop Loss order for 10% below the price of your purchase. So, if the price falls, the asset will be sold with a loss equal to 10%. Let's say you have bought a stock at $50 per share. Immediately after this trade, you place a Stop Loss order specifying the stop loss price equal to $45. If the stock falls below $45, the trade will be executed automatically, and the shares will be sold at the prevailing market price.

Keep in mind that in the event of high volatility or a sharp drop, this price could fall below $45. The broker will choose the best market price at the current moment in accordance with your terms.

Again, the Stop order will be executed when the price reaches the specified point at any current price, just like a market order. For instance, if the share continues falling beyond the stop sell price, the order can be executed at a price lower than the specified threshold. When we set the Stop Buy order, once the specified price is reached, the asset will be bought at any price higher than the stop price.

We recommend using a Stop Loss order in a buy trade when:

It is important to understand that if the stop price is met, the trade can be executed at the nearest price matching the preset conditions, but it may still differ from your specified entry or exit price. The shifts depend on the current market. So, there is a threshold behind which a Stop order transfers into a market order.

The most important advantage of a Stop Loss order is that its implementation does not cost anything. You will pay a regular commission for the trade. Also, there is no need for continuous monitoring of the market. It is very handy if you do not want to watch your investment assets all the time.

In addition, you do not have to make an investment decision under the influence of emotions. Of course, you are not free from making thoughtful investment decisions, but when you limit trade, the risks may be lower.

Limit orders

Now, what is a Limit order in stocks? Limit orders can be compared with Stop orders as they are executed at a specified price. But in this case, it is known as a limit price and comes with a critical difference. The trade price cannot be less beneficial than the specified limit price. There is a variation of Limit orders known as Take Profit orders. When you place a Take Profit order, you are expected to specify the exact price, which will allow you to execute a trade with a profit. If the price of the asset does not reach the specified price, the Take Profit order does not get filled. Let's take a closer look at the differences between Buy Limit and Buy Stop.

How does a Limit order work?

The Limit order allows a broker to sell or buy an asset at a price that is not less than or not more than the limit price, respectively. We will see a key distinction if we compare it with a Stop order. The Stop orders are executed at any market price when the stop price is reached. While Limit orders are executed at a limit price or better, they are used when there is a high chance of an advantageous trend, which allows buying or selling at a better price.

Let’s say you’d buy an asset at a price of $50. If you set this value as the limit price, your order will be completed when the market price reaches $50. If it does not hit the point, the trade will not be executed. And it is clear that you just cannot set the price as the limit price that is available at the current moment. You will use the Buy Stop if the current price is below $50. Once the price rises to this level, the buy order will automatically open. If it does not rise to $50, the trade will not be executed.

What is a Limit order example?

Do you feel slightly confused with the above information? What does limit mean in stocks? Let’s get to the bottom of it together. For instance, you want to quickly buy (or sell) the stock. The most appropriate solution is to place a market order, which is commonly executed rapidly at any stock's current price. Let it be equal to $150. Alternatively, you may want to buy the stock only if its price decreases to $100. Here you are recommended to place a Limit Buy order with the limit price equal to $100. If the price reaches this point, the Limit order will be executed. But if the price never reaches $100, the stock will not be bought.

We hope that if you consider Buy Limit vs Buy Stop, you will understand the difference. The same mechanism is triggered when you want to sell the stock at the highest possible price. As a Sell Limit order example, let’s consider the same case. If you want to sell the stock at the highest possible price, you should place it above the current market price – let’s say you specify $160. The order will be executed at this price or higher.

A comparison of Sell Limit vs Sell Stop will help you to understand what exactly you need at the moment. There is another issue to understand. When the current market price reaches the specified limit value, the order may still not be filled. The reason is that there are orders ahead of yours that lay claim to the same shares at a limit price. Execution of Limit orders is usually performed on a first-come basis.

Stop Limit orders description

You now understand the difference: Limit order vs Stop order. By the way, if you have not ever placed an order, we recommend viewing our brief guide that will tell you how to close and open an order. Do not forget about another important order type. This is a Stop Limit order. It is only available on the MetaTrader 5 platform.

The definition is simple: it combines the features of the above-discussed ones. When you use a Stop Limit order, you are suggested to specify a price that is either higher than the current price for the asset you want to buy or lower than the current price for the asset you want to sell.

When the specified price is reached, the Limit order is automatically placed at the specified price, which is known as the stop limit price. In other words, first, this order type looks like a Stop order, but when the current price reaches the stop price, it becomes a Limit trade, meaning that the trade will be executed at the stop limit price (or better). This is a great way to control the price and trade within the defined range.

How does a Stop Limit order work?

Thus, this order type includes a Stop market order, when you place an order to buy (sell) at the best possible market price after the specified price is reached, and a Limit order, when you place an order to buy (sell) an asset at a specified price or better. In this way, it limits losses by providing you with the assurance that a trade will be executed at a favourable price.

You should make a Stop Limit order to send it to a broker. It appears in the order book, waiting for execution. It can be triggered when the set conditions are satisfied. It can be cancelled by a trader and can expire as long as its validity period is specified. So, if there is no price for the asset you want, and, let’s say, the duration is one day, the order will expire at the end of the market session. However, there are various options. You can set a good-till-cancelled order, meaning that it will not expire if you do not cancel it.

We should mention the risks that come with a Stop Limit order:

What is a Stop Limit order example?

We are going to provide a simple example. Let’s say you have bought shares at $500, being sure of an upward trend. To mitigate risks, you are suggested to place a Stop Limit order, which allows you to sell these shares if a market price goes lower than the stop value. At the same time, you do not want to undersell the shares and set a limit price, which is the lowest threshold for the trade.

So, you set the stop price to $490 and the limit price to $490.50. As a result, the order should be executed when the share price reaches $490 and continues to drop. But even if the price drops to $489 (below the stop price), the order will still not be executed if, at that moment, there is no buyer ready to buy the asset at $490.50 (the limit price). In this example, the stop price differs from the limit price. But you can set the same values for just one order.

Conclusion

Using various order types may help to raise the prospects of achieving an objective. We hope the article has provided you with a good overview to help you trade with lower risks. Now you understand the differences between Buy Limit vs Buy Stop, Stop order vs Limit order, etc. Stay tuned with us to be the first to know the hottest market and industry news!

#source


RELATED

How to use macd indicator in forex trading?

To make the trading process easier and more successful many brokers and traders prefer to use forex economic indicators. These are half-automatic programs and aim at depicting this or that criteria...

Trading The Gap: What Are Gaps & How To Trade Them?

All traders occasionally encounter the phenomenon of price gaps and might get confused. Gaps are encountered in all financial markets and most often appear on Monday...

What Is Revenge Trading, And How Can You Avoid It?

Sometimes the market exhausts us mentally and psychologically. For example, you open a trade in full confidence that you have thought everything through and calculated...

Commodity Channel Index Trading Strategy

A key aspect of successful trading is an effective trading strategy. Even novice traders know this. However, the development of a successful system of earnings...

How to Make a Cryptocurrency Trading Plan

With each passing day, more and more traders join in on cryptocurrency trading. It’s unsurprising, considering the cryptocurrency market has been rapidly expanding for over a decade...

Beginner’s Guide: How to Hedge Your Crypto Portfolio

Although the cryptocurrency markets offer numerous opportunities due to their volatility, they can also lead to significant fluctuations in profit and loss, causing uneasiness. Employing hedging strategies...

Top Gold Trading Strategies and Tips

Trading gold is much like trading forex if you use a spread-betting platform. A gold trading strategy can include a mix of fundamental, sentimental, or technical analysis...

Strategies for Trading Forex CFDs

This article will explore various strategies for trading forex CFDs. Understanding these strategies will empower you to make informed trading decisions...

Crafting a Robust Trading System: Strategies, Analysis, and Management

In today's complex financial landscape, trading across various markets demands a strategic approach. Creating an effective trading system involves a combination of technical expertise...

Martingale Trading Approach: Employing It With Controlled Risk

Within the intricate and volatile domain of financial markets, strategies promising rewards are invariably intertwined with substantial risks. One such strategy is the Martingale approach...

Mastering Trend Trading: Strategies and Risk Management for Beginners

Trend trading, a cornerstone of successful financial market navigation, capitalizes on the consistent upward or downward movement of asset prices...

Backtest a Trading Strategy: Can you apply it to Forex Market?

Backtesting is a way to look at how a trading plan or idea has been done in the past. A trader can either physically backtest an approach or use backtesting software...

Dogecoin vs. Shiba Inu: Which one is the Better Investment?

Dogecoin and Shiba Inu have captured many crypto headlines over the last few years, as some have become millionaires overnight. However, deciding on buying Shiba Inu vs. Dogecoin...

Mastering the Trading Plan: A Comprehensive Guide to Minimizing Errors and Enhancing Profits

In the high-stakes world of trading, the old adage, "Those who fail to plan, plan to fail," resonates profoundly. The dynamic world of trading requires more than just intuition...

Mastering Volatility Trading: Strategies, Indicators, and Essentials

For active traders and investors, the ability to comprehend and capitalize on market volatility is a crucial skill. Volatility measures the extent to which asset prices fluctuate over a specific period...

Impact of Environmental, Social, and Governance Factors on Forex Trading

Discover how ESG considerations are increasingly influencing forex trading decisions and strategies. Over the recent years, more and more investors and traders have decided to put their money where their mouth is...

Everything you need to know about Margin Trading

How can you become more skilled in online CFD trading? The key is to possess as much knowledge as possible about anything that concerns the financial markets and the available trading tools and resources...

Excelling with the Breakout and Retest Trading Strategy

The allure of the Breakout strategy lies in its promise to savvy traders and investors, offering a gateway into trade right as significant price action begins to unfold...

Top 11 Forex Trading Strategies in 2023

Trade popular currency pairs at low cost with Vantage. Vantage is a leading regulated forex broker offering access to the world’s most popular currency pairs...

Copy Trading: A Comprehensive Guide to Social Financial Strategy

Modern trading platforms and strategies continually evolve, offering investors innovative ways to navigate financial markets. One such strategy that's been catching waves lately is copy trading...

FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
75%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.