difference between a limit- and a stop-order - Forex Forum

This seems like a very basic question but could someone explain to me the exact difference between a limit- and a stop-order because on the software i use (ACM trading console) it doesn't really seem to make a difference which one i use.

and then i was wondering which type of order you use to put a stop-loss or n OCO order?

a limit order is used to start a trade if the price hits a fixed level
a stop order is used to close a trade if the price hits a fixed level

so does that mean, when placing a limit order (sell) for, say, EURUSD at 1,3310, and the price reaches 1,3340 that the trade isn't executed until 1,3340 is reached, i.e. that the order waits until the highest point is reached as long as it is above the set limit?

This post has been edited by Truth: Oct 22 2008, 10:31

That's not really correct.

A limit order is an order to buy (or sell) at a specific price, but the price has to be lower (higher) or equal to the limit price.

A stop order is an to buy (or sell) at a specific price, here the price has to be higher (lower) than the stop price. Once the stop price is reached the order becomes a market order.

That's one of the reason brokers won't guarantee the price on a stop order.

you are right ryker.

The STOP and LIMIT orders have different purposes.
STOP is to do with LOSSES and LIMIT is to do with PROFITS.



The STOP order is set if your trade goes against you and you are making a loss. In this case you need to allow only a certain amount of loss, otherwise it could be huge.
So you need to put a "stop loss" order in, or, in short, this is called a STOP order. With a STOP order, you are resigned to your loss but you have put a very wise halt to it.

With a STOP order you can decide beforehand how much you are prepared to lose, should the trade go against you. Just set the STOP at the required level.




Now the LIMIT order is something quite different. The word "limit" can be deceiving here. It basically means "at this price only and no other price"

The LIMIT order can be used to enter trades - You set the entry price and the trade is entered at this price only and no other price.
The LIMIT order can be used to exit trades when a profit is made (yay!). You decide your profit and set your price to exit the trade. The trade is closed at the this price only and no other price.

With a LIMIT order you can decide beforehand how much you want to gain assuming the trade goes well. Just set the LIMIT at the required level.

There are SELL stop orders and stop limit orders, and there are BUY limit orders. (There are also a multitude of other types of orders, like trailing stops, conditional order, one cancels the other (OCO), one triggers the other (OTO)), but for simplicity we'll just stick to the above.

If you set a SELL stop limit order at $10, then you're saying that if the stock drops below $10, then sell (but I want to get at least $10). If the stock gaps down, you may not be able to sell, if it falls thru your limit order of 10.

This post has been edited by hadencole: Dec 25 2008, 16:43

I think the best way to understand stop and limit orders is trading. Have you tried some platforms? I started some weeks ago and got a nice platform. That is why now I know how to take advantage of these orders
If you need some advice about it, I’ll help you as much as I can

Vanes

No, while it's true that you can use a stop to close a losing trade, you can also use a stop to initiate a new trade.


No, you can also use a limit order to open a new trade




No, a limit means "I want that price ... OR BETTER!"

If you get a better price that's called a positive slippage. But few brokers will fill you at a better price, normally, because they are always playing games with us.

I think after many posts I got confuse, but I will learn from the last 3. Vanes7 what do you mean with you can help? What advantages or strategies or tips or whatever. Share them with us!