There are four types of limit orders

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Limit orders must be placed on the right side of the market to ensure that they fulfil the task of improving the price. For a buy limit order, this means that the order is placed at or below the current market bid.

Sell limit order:

An order to sell a security at or above a specified price. To ensure an improved price, the order must be placed at or above the current market ask price.

Buy stop order:

An order to buy a security at a price above the current market bid. A buy stop order becomes active only when a certain price level is reached (called the stop level). Buy stop are orders placed above the market and sell stop orders placed below the market (the opposite of buy and sell limit orders respectively). Once a stop level is reached, the order is immediately converted into a market or limit order.

Sell stop order:

An order to sell a security at a price below the current market price (ask). Like the buy stop, a sell stop order only becomes active after a certain price level has been reached.

Market and limit orders

When deciding between a market or limit order, investors should be aware of the additional costs in your Exness mt5 or mt4. As a rule, commissions are cheaper for market orders than for limit orders. The commission difference can range from a few euros to more than 10 euros (depending on the broker). For example, a commission of 10 euros for a market order can be increased up to 15 euros if you place a limit order on it. If you place a limit order, make sure it is worth it.

Example calculation of fees: 

Let’s say your broker charges €7 for a market order and €12 for a limit order. Share XYZ is currently trading at €50 per share and you want to buy it at €49.90. If you place a market order to buy 10 shares, you pay €500 (10 shares x €50 per share) €7 commission, giving a total of €507. If you place a limit order to buy 10 shares at €49.90, you would pay €499 €12 commission, giving a total of €511.

Even if you save a little by buying the share at a lower price (10 shares x €0.10 = €1), you lose this by the additional cost of the order (€5), a difference of €4. Furthermore, in the case of the limit order, it is possible that the share will not fall to €49.90 or less. So if it continues to rise, you may lose the opportunity to buy.

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Take Profit – Take Profit Order

A take profit order (sometimes called a profit target) aims to close the trade at a profit once it reaches a certain level. By executing a take profit order, the position is closed. This type of order is always associated with an open position of a pending order.

Not all brokerage houses or online trading platforms allow all these types of orders. Contact your online broker if you do not have access to a particular order type you wish to use.

The bottom line on order types

Knowing the difference between a limit order and a market order is essential for individual investing. There are times when one or the other is more appropriate, and the order type will also be influenced by your investment approach.

A long-term investor is more likely to choose a market order because it is cheaper and the investment decision is based on fundamentals that will evolve over months and years. However, a trader is looking to react to a short-term trend in the charts and is therefore much more aware of the market price paid; in this case, a limit order to buy with a stop-loss order to sell is usually the bare minimum for setting up a trade.

Knowing what each order does and how each one might affect your trade will help you determine which order suits your investment needs, saves you time, reduces your risk and, most importantly, saves you money.

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