When a trader sees a financial instrument that he wishes to purchase, but only at a price lower than where it currently stands, he may place a buy limit order, which would instruct his broker to automatically open the position if and when the price reaches what the trader is willing to pay for it. In essence, it is the trader’s way of instructing his broker to open a position at a better rate than the current market price.
The advantage to a buy limit order is that the trader decides how much he is willing to pay for an asset, and not have to spend more than that amount. The disadvantage is that if the price drops close to his limit, yet without touching it before shooting back up, he will not have spent anything, but he will have missed the opportunity to earn a profit when the asset price reversed direction.
Imagine a trader sees that the stocks of a company that he has been following are trading at $35 per share, and he believes that when the price hits $29, it will rise again. He might place a buy limit order for 100 shares of that stock at $30. If and when the price reaches $30, his broker will automatically open the position, and if his prediction was accurate, he can earn a nice profit on his 100 shares. if the price reaches $32 without hitting/ reaching as low the Limit level of $30, the Limit Order will not be triggered.
Please note: No brokerage, including Fortrade, can guarantee that a buy limit order will be filled at exactly the price requested by the trader. Rather, the broker will execute the order at the requested price, and the position will be opened at the first available price in the market from that time. When conditions are especially volatile, there may be slippage – which is a change in price – between the time that the broker executes the order to open a position and the time the position is open, thus resulting in a lower profit for the trader.
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