How Do You Use Limit Orders Like a Pro in Forex Trading?

Let’s face it.  

Protecting your capital is a tough task ― especially when you’re a rookie.  

The forex market is a ‘dog eat dog’ world. If you really want to be a pro, there’s no shortcut to success.  

It takes a lot of discipline and hard work.  

The good news is: If you learn how to execute orders and prevent big losses, you can become a consistently profitable trader with practice. In this lesson, we will explain how to best execute your forex trades.  

If you like the sound of that, read on… 

Market and limit orders 

You likely know the difference between market and limit orders.  

But what’s better for forex trading?  

Returning to the basics (as a refresher), if you want to buy at the current price, you will perform a market order. If you want to buy or sell your forex pair ‘at market’, you will get a price close to the quoted price most of the time.  

For example, let’s say you want to buy one lot of ABC/DEF ‘at market’. Its bid price is 1.5089 and the ask price is 1.5099. If you choose to buy ‘at market’, as you know, you would get a price of 1.5099. In other words, you buy at the ‘ask price’.  

As we said, most of the time, your order should get executed for the price quoted on the screen. But you don’t always get the best price because of ‘slippage’. Stating the obvious, ‘slippage’ is when you’re buying/selling at market (the price you see on the screen) and you get a slightly different price since the price ‘slips’. 

This happens all the time in volatile markets. 

You should be aware of the current trading conditions. When the market’s volatile, elite traders stay on their toes ― especially when unexpected major news comes out. In fact, the best forex traders avoid slippage altogether.  

How do you do that?  

By trading with limit orders.  

The best forex traders ‘take liquidity’ when entering trades, and ‘provide liquidity’ when taking a profit. When exiting for a loss, elite forex traders tend to ‘take liquidity’ as well. In other words, elite forex traders avoid trading with market orders at all costs, preferring limit orders instead.  

Newbie traders tend to use market orders since they don’t know any better.  

If you want to get the right price, always trade with limit orders.  

For example, ABC/DEF is currently trading for 1.5540 (bid)/1.5550 (ask).  

You want to go ‘short’ and place a limit order at the ask price of 1.5550. If you shorted ‘at market’, your trade would get executed at the bid price of 1.5540. The only way to short at the ‘ask price’ is to set a limit order. When the price moves to 1.5550, pending there’s enough volume at the price, the ‘sell limit’ order will get executed.  

Fortunately, as we know, forex is the largest market in the world. So there’s no shortage of liquidity ― especially if you’re trading with a market marker. In all honesty, unless you’re trading with billion–dollar positions or illiquid forex pairs, you shouldn’t have trouble getting your trade executed when placing limit orders.  

In short, using ‘limit orders’ allows you to have more control over the execution price and the position in general ― especially if you want to avoid market ‘slippage’ like a pro!  

How do you use them? 

The real question is: ow can you use limit orders to your advantage?  

It’s simple.  

You place ‘buy limit’ orders, if your goal is to purchase lower than the current price. For example, let’s say you’re keen on buying ABC/DEF, which is priced at 1.5070. But you think it’s too expensive and the price will drop to 1.5050. What you can do is set a ‘buy limit’ at 1.5050, so you will be able to purchase it when the price drops.  

Remember, only do this if you believe the price will drop below the current market price.  

What are buy stop orders? 

If you want to trade breakouts, you can place ‘buy stop’ orders. For instance, if the forex pair is trading at 1.2010 and you want to go long at 1.2030. If you set a ‘buy stop’ order, when the trade has a little momentum behind it, it can work in your favour.  

Do we recommend doing this for beginners?  

The short answer is, it depends what kind of forex trader you want to be. As mentioned, if you want to do breakout trading, these kind of orders work best. Likewise, if you wish to enter the market to sell higher or lower than the current price, then you should place ‘sell limit’ or ‘sell stop’ orders. 

How do use sell limits and sell stops? 

If you want to sell a forex pair above its existing price, you need to set a ‘sell limit’ order. That means, if you believe the price will rise before it falls, this one’s recommended for you. 

Keeping with the above example, assuming that ABC/DEF is now trading at a price of 1.3010, if you place a ‘sell limit’ order, you would go short when the price hits 1.3020. If the price reaches your goal of 1.3020 or exceeds it, you will be short. 

This is similar to the ‘buy limit’ order.  

You likely get the picture by now, so let’s look at the ‘sell stop’ order. 

Say ABC/DEF is currently trading at a price of 1.3000. You believe it will fall by more, but you aren’t confident. If you want to see more momentum behind it before you go short, you should set up a ‘sell stop’ order. If the forex pair drops to your target price, your ‘sell stop’ order will be executed.  

Similar to the ‘buy stop’ order, this position is generally used by breakout traders who want to see momentum behind the price. 

How to execute orders on MT4 and MT5 

If you’re not familiar with how to set up pending orders for sell stops and sell limits on your MT4 or MT5, here’s what you need to do: 

Open your MT4 or MT5 software, then select ‘Tools’ followed by ‘New order’. 

You then need to choose the forex pair you’re going to trade, under ‘Symbol’. 

Click ‘Pending order’ under ‘Order type’.  

Once you’re here, there are four different types to choose from: 

• Buy Limit: Buy when it falls below the current market price.  

• Buy Stop: Buy when it rises above the current market price. 
• Sell Limit: Sell when it rises above the current market price. 
• Sell Stop: Sell when it falls below the current market price. 

Now, after this, you need to select your entry price and pick your trading position size.  

Then decide whether to use a ‘take profit’ and/or a ‘stop loss’ order. When you’re done, you hit ‘Place order’. 

Like we said, these guidelines are the basics. There’s no rush. Go at your own pace and execute them with precision when trading.  

Own it and believe in your capabilities. 

Your ‘Start With Forex’ takeaway 

There’s lots to learn to become a consistently profitable forex trader.  

But the best forex traders avoid slippage.  

Remember, they do that by trading with limit orders.  

Elite forex traders ‘take liquidity’ when entering trades, and ‘provide liquidity’ when taking a profit. When exiting for a loss, elite forex traders tend to ‘take liquidity’ as well. In other words, elite forex traders avoid trading with market orders, preferring limit orders.  

Newbie traders tend to use market orders since they don’t know any better.  

I hope that you found this information useful. It wasn’t the most interesting lesson in the world, but it was important. If you have made it to the end, you likely won’t be using market orders anytime soon! In the next lesson, you will learn what the best stop–loss strategy is in forex trading.  

To view that lesson now, click here.  

To your trading success, 
Start With Forex