Percentage in Point

Understanding Forex Trading Limit Offers

Posted: 25 Oct 2010 06:00 AM PDT

Foreign Exchange Limit Orders, also known as Forex limit orders is an instrument that ensure the price you pay when you purchase a foreign currency is between the maxima's and minima's of your budget. It serves like a notification for the investor if he/she purchases a currency higher or lower in price than what he actually intends to. The contradicting feature between a Forex order and a market order is that a foreign currency transaction can only occur when the trading currency is under the prescribed limits of the investor. Even though both of these fall under swift orders on the spot market, Forex orders are observed to be taking a little long to be in effect.

Forex Limit Order

How to set limits when buying Forex trading currency

This can be best explained with an example. Assuming the current ask price is 1.5789/ 98. When you place an order, this implies that you`d only buy the currency if the price is not higher than you intend and are willing to pay.

Then you`d be clicking on the ask price and then you buy 4 lots of EUR/USD, with a set limit of 1.5750. This means that until the price lowers to 1.5750 or more, the transaction would not take place.

How to set a limit order when selling Forex currency:

Referring to the past example above, a limit order on the ask/bid price is 1.5789. This expresses that you would sell the currency only if the price is equal to 1.5789 or more.

Factors to consider when placing Forex limit orders:

There are possibilities that your orders may never be executed, primarily because the prevailing currency price may never reach your prescribed limits.

Terms to know:

Bid price is the price that trader is bidding to sell the currency
Ask price is what the trader asks to buy the currency
Bid price limit will always be for the maximum amount; unless the currency reaches the maximum it won't be sold.
Ask price will always be made for the minimum amount; unless the currency drops to the minimum it will not be bought.