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Question about limit orders

Discussion in 'Beginners Bootcamp' started by pipster, Oct 1, 2007.

  1. pipster

    pipster Recruit

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    Not sure if I still understand this concept?? What is "Entry Stop Sell" and "Entry Limit Buy"?

    The basic idea of a limit order I get, but why are there two types of limit orders?
     
  2. Freefat

    Freefat Recruit

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    Limit orders

    Thats a difficult concept to understand at first...don't worry, you are not alone.

    A limit entry order can be one of these:
    1. a buy order below the current price
    2. a sell order above the current price.

    A stop entry order can be one of these:
    1. a buy order above the current price
    2. a sell order below the current price.
     
  3. sellhigh

    sellhigh Recruit

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    Limit order

    I got this from babypips. Not sure if it helps you to understand it any better.

    Limit order
    A limit order is an order placed to buy or sell at a certain price. The order essentially contains two variables, price and duration. For example, EUR/USD is currently trading at 1.2050. You want to go long if the price reaches 1.2070. You can either sit in front of your monitor and wait for it to hit 1.2070 (at which point you would click a buy market order), or you can set a buy limit order at 1.2070 (then you could walk away from your computer to attend your ballroom dancing class). If the price goes up to 1.2070, your trading platform will automatically execute a buy order at that exact price. You specify the price at which you wish to buy/sell a certain currency pair and also specify how long you want the order to remain active (GTC or GFD).

    Stop-loss order
    A stop-loss order is a limit order linked to an open trade for the purpose of preventing additional losses if price goes against you. A stop-loss order remains in effect until the position is liquidated or you cancel the stop-loss order. For example, you went long (buy) EUR/USD at 1.2230. To limit your maximum loss, you set a stop-loss order at 1.2200. This means if you were dead wrong and EUR/USD drops to 1.2200 instead of moving up, your trading platform would automatically execute a sell order at 1.2200 and close out your position for a 30 pip loss (eww!). Stop-losses are extremely useful if you don't want to sit in front of your monitor all day worried that you will lose all your money. You can simply set a stop-loss order on any open positions so you won't miss your basket weaving class.
     
  4. Plato

    Plato Private

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    limit orders

    A Limit Order allows you to enter the market at a better price than the one quoted now.


    A Stop Order allows you to enter the market at a worse price than the one quoted now.


    Hope that clears things up a bit.
     
  5. JanPoko

    JanPoko Private

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    I don't think so. You should use a stop order for this, otherwise your order will be filled immediately at 2.050, doesn't it?
     
  6. NotYet Broke

    NotYet Broke Recruit

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    I believe you are correct JanPoko. And, SellHigh has correctly quoted the babypips definition of a limit order. And unless I should give up english as my first language, babypips has this wrong.
    I never heard of a stop entry order until I read this thread (newbie) but from elsewhere on the ethernet I quote:

    "Stop entry orders operate on a rationale that is the opposite of limit entry orders. Stop entry orders are orders to enter the market at a less favorable price. When buying a currency pair, the stop entry will be placed above the current market price. When placing an entry order to sell, the stop entry order will be placed below the current market price.

    Stop entry orders are conducive to breakout strategies, where the trader believes that if the specified rate is reached, the trend's movement is confirmed and thus will continue in that direction."
     
  7. ritzdazel

    ritzdazel Recruit

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    stop and limit

    Using a stop to enter is exactly the same as using it to exit. Traders are just so used to thinking of them as stop losses that the entry part is forgotten. You use them to enter on breakouts and breakdowns, and stuff like that.

    The difference betweent a stop and a limit is that a stop becomes a market order when the price gets hit, so there could be slippage either way on the execution. A limit is an "or better" order, so the slippage could only be favorable.
     
  8. Lhar_fpa

    Lhar_fpa Private, 1st Class

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    Nice explanation, at least I know what are the differences. Thanks guys!:)
     

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