What is a limit order?
A limit order is an instruction for your broker (that’s us) to enter or exit a trade if the market moves in your favour and the price hits a certain predetermined level.
The level will generally be determined by you and it’ll depend on whether you’re going long or short, and entering or exiting a trade.
What are the two types of limit orders?
There are two types of limit orders: limit closing orders and limit entry orders.
1. A limit entry order
This is an order to open a position when the market is moving in a favourable direction for you, according to your predictions. It ensures that you’re automatically entered into a trade. A limit order will always be an order to open a position that is better for you than the current market price. So:
- If you’re buying (going long), as you think the price will rise, the limit entry order level will be below the current price
- If you’re selling (going short), as you think the price will fall, the limit entry order will be above the current price
2. A limit closing order
This is an order to automatically close your position when it’s reached a certain level – thereby securing possible profits and avoiding potential future loss, if the market turns.
It’s always set at a more favourable price than your opening position. So:
- If you have a long position open, you’d set the limit order above the market price at the level you want to exit your trade
- If you have a short position open, you’d set the limit order below the market price at the level you want to exit your trade
What about buy limit and sell limit orders?
Buy limit orders are limit entry orders for long positions. In other words, it’s an instruction to automatically open a trade when your predetermined price point is reached by the market.
A sell limit order is the same as a limit closing order. It's an instruction to close your position when it reaches a certain level.
How do limit orders work?
Limit orders work by entering you into or out of a trade when the market reaches a certain price point as set by you. This is done automatically, with our system doing the rest as soon as you’ve entered your parameters.
This is so you don’t have to watch the market constantly for if prices will move in your favour. Limit orders are especially useful in volatile markets when prices change suddenly and you won’t always have time to manually close or open a trade that’s turned profitable.
How limit entry orders work
You can set a limit entry order either spread betting or CFD trading on our platform. A limit entry order will be manually determined by you at the level at which you would want to open a position, if the market moves in your favour. When that price level is reached, your limit entry automatically opens a position for you without your having to do anything.
How limit closing orders work
You can also set a limit closing order with either spread betting or CFD trading. A limit closing order is also manually determined by you. When opening a position, you will set a limit closing order as the amount of profit you’re happy with making, if the market moves in your favour. Then, when that price level is reached, your trade is automatically closed, thereby locking in potential profits.
How limit orders work for share dealing
Limit orders are commonly associated with spread betting and CFD trading. However, with us, you can also use limit orders for share dealing.
Limit orders for share dealing work in a similar way to with trading. After manually setting your limit order when buying or selling shares on our platform, that order will automatically trigger when your predetermined parameters are set.
This will either open a position at that price for a limit entry order or close your position in the case of a limit closing order. Either way, you’d pick a price level higher than the current price.
How to place a limit order
The method you’ll use of placing your entry order will differ slightly depending on the platform.
- How to place a limit entry order on our trading platform
- How to place a limit closing order on our trading platform
- How to place a share dealing limit order
How to place a limit entry order on our trading platform:
3. Pick your price level. This is the amount at which you want the limit order to automatically open a new position
4. Choose between a ‘good til cancelled’ stop loss, which will run until the predetermined price level is met, and a ‘good til date’ orders, which will close out automatically on a predetermined future day
5. Open your trade by clicking ‘place limit order’
How to place a limit closing order on our trading platform:
1. Open a trading account to get started, or practise on a free demo account. You can trade with limit orders on both spread betting and CFD trading accounts
2. Conduct technical and fundamental analysis on the market you want to trade. Learn more about technical analysis and fundamental analysis
3. Pick your price level. This is the amount at which you want your position to open
4. Pick your limit level. This is the number of points away from the opening price you want your limit closing order to be triggered at. Open your trade by clicking ‘place limit order’
You can also add or edit a limit closing order once your position is open. Go to 'Positions' on our web platform or app, and select the price level you want the limit closing order to be triggered at.
How to place a share dealing limit order:
1. Open a share dealing account to get started
2. Conduct technical analysis and fundamental analysis on the shares you want to invest in
3. Choose ‘limit order’ under ‘order type’
4. Pick your chosen price level. This is the level closest to which you want your limit order to trigger, closing your position at the best available price
5. Place your limit order
What are the benefits and risks of using limit orders?
Benefits of using limit orders
- You can decide on the maximum price at which you’d want to open or close a position
- You won’t need to constantly monitor the market, waiting to manually open or close a trade at the right time
- You can access potentially lucrative positions in volatile markets whenever you may not have time to manually open or close a trade, but an automatic limit order can still trigger
- In the case of very volatile markets, this could even lead to a phenomenon called ‘positive slippage’ – where the market suddenly moves beyond your set amount, fulfilling your order at an even better price than your limit order expected
Risks of using limit orders
- There is the chance that a position may never be opened, which could affect your trading strategy, because a limit order is ‘you price or better’
- Limit orders do not protect against loss – for that, you’ll need a stop order. So, even if you have a limit order in place, without a stop order your potential for loss is uncapped should the market move unfavourably. Learn more about stop orders
- Your position could opened but, with a sudden market downturn or upswing, it’d be at a loss straight away. And if you were using a limit closing order, there’s the risk that any movements might prevent your order being triggered at the price level at which it was set, which could impact your profit
Limit order example
Let’s say you want to go long on Apple shares with spread betting. You’ve conducted your own analysis and believe that Apple shares will likely go up briefly in a ‘dead cat bounce’, then fall again. Your prediction is that this will happen when the Apple share price reaches 9920.
So, you decide to open a spread bet at £10 per point and set up a limit entry order to automatically buy (go long on) 10 Apple shares when the price hits 9,920 (buy price 9,950 and sell price 9,890). The margin requirement is 20%, so you’ll have to put down £19,990 to open your position ([9,950 buy price x 10 shares] x 20%).
After a few days, Apple’s share price hits 9,920 as predicted and your limit entry order takes effect, automatically buying 10 Apple shares. You decide that you want to close the position when the price reaches 11,080 (buy price 11,110 and sell price 11,050), so you set a limit close order.
If the Apple share price climbs to 11,080, your limit closing order will automatically close out the trade, locking in your profits of £11,000 ([11,050 sell price – 9,950 original buy price] x £10 per point).
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