A limit order is an instruction set to buy or sell a certain financial instrument at a specific price or higher. Unlike market order, the limit order does not guarantee execution. In order words, the direction of the price action may never reach the traders specified set price. Therefore, the trade might never be executed. But the upside of using limit order is that it prevents the trader from paying more than he pre-determined to pay for a financial instrument.
Types of limit order
Limit orders can sometimes be referred to as buy limit order or sell limit order depending on the direction of the trader’s position. The buy limit order is only executed at the set price or lower than the limit price. A sell limit order, on the other hand, is executed at the set price or higher than the set price. For instance, share XYZ has a buy limit order that stipulates that the trader will not pay more than 5$0 per share or share ABC has a sell limit order that stipulates that the trader is willing to sell share ABC for at least $30 per share.
Stop loss Order
This is the opposite of take profit order. This order ensures that a trade does not take place at a price that is lower than the originally indicated target. It is used for entering into a new trade or selling an already existing financial instrument.
Conditional Order
Conditional orders are additional features added to limit orders. Examples include “one cancels the other”, fill or kill order (FOK), all or none order etc.
“One cancels the other” is the type of order that is implanted when it is paired with a stop order with the stipulation that should one of the paired orders be executed, the other will automatically cancel immediately.
All or non order is the type of order that is implemented when the trader implements an instruction that in other for the trade to be executed, all desired shares must be bought or sold at the same time.
Fill or kill order is when the trader instructs for the trade to either execute immediately or cancel.
Lastly, if/then order. This type of order stipulates that for the second part of the trade is executed if the first part is executed successfully. In contrast, if the first part is not executed, the second part will also not be executed.
Timing
Each of these types of orders has an indicated time frame by which the order will be in effect. The order will not be executed until that time is reached. Good till cancel (GTC) is a term that means that until the trader cancels a trade by himself the trade will remain in effect. This is because it is possible for orders to be filled for 24 hours due to different time zones in the foreign exchange market.
An order usually includes an indication of how long it will remain in effect. The term “good till canceled,” abbreviated GTC, means that the order will remain in effect until the investor cancels it. It is common to have an order cancel automatically at the end of the trading day; however, in the foreign exchange market, which trades around the clock, orders can be filled 24 hours a day.