Buy Stop and Buy Limit in Forex Trading: Differences and Proper Usage

Trading forex requires a deep understanding of various order types. This article will help both professional and beginner traders learn the differences between Buy Stop and Buy Limit, which are fundamental tools for controlling trades.

Main Types of Orders in the Forex Market

In the forex market, there are two main groups of trading orders:

Market Order is an order to buy or sell at the current market price. It executes immediately at the price offered by the market but does not guarantee that the execution price will be as expected.

Pending Order is a pre-set order to buy or sell when the market reaches a specified level. The order will activate automatically once the market hits that level.

What is a Buy Stop?

Buy Stop is an order to open a long position when the price rises to a level above the current market price. It is based on the idea that once the price breaks through the resistance level, it will continue to rise.

Sell Stop is an order to close a short position when the price drops to a level below the current market price, reflecting the expectation that if the price breaks below the support level, it will continue to decline.

What are Buy Limit and Sell Limit?

Buy Limit is an order to buy an asset at a specified price or lower, which is below the current market price. It is used when traders expect the price to dip before rising.

Sell Limit is an order to sell an asset at a specified price or higher, which is above the current market price. It is suitable when traders anticipate a price reversal after reaching a certain level.

How do Buy Stop and Buy Limit differ?

The main difference lies in the price level and usage:

• Buy Stop is set above the current market price, used when expecting an upward trend to continue after breaking resistance.
• Buy Limit is set below the current market price, used when aiming to buy at a lower price.

Similarly, Sell Stop is set below the current market price, and Sell Limit is set above the current market price.

What types of Pending Orders are available?

Buy Stop - Open a buy position

Used to open a buy at a price higher than the current market. The order will execute at the prevailing market price, which may differ from the set price. Generally used when expecting the price to continue rising.

Sell Stop - Open a sell position

Used to open a sell at a price lower than the current market. The order will execute at the current market price, which may differ from the set price. Usually used when expecting the price to continue falling.

Buy Limit - Buy at a lower price

Used to open a buy at a price below the current market. Execution occurs at the set price or lower. Typically used when expecting the price to decline before rebounding.

Sell Limit - Sell at a higher price

Used to open a sell at a price above the current market. Execution occurs at the set price or higher. Suitable when expecting the price to reverse after reaching a certain level.

Advantages of Using Pending Orders

1. Automation and Convenience

Traders can set entry and exit prices in advance. Orders will execute automatically when the market reaches those levels, reducing the need to monitor the market constantly.

2. Trading Precision

By specifying exact prices, traders can avoid entering trades at unfavorable prices due to market volatility. This is especially beneficial when trading around Support and Resistance levels.

3. Effective Risk Management

Traders can set Stop Loss and Take Profit levels along with Pending Orders to define risk-reward ratios, helping to limit losses and lock in profits.

4. Reduce Emotional Decision-Making

Using Pending Orders helps traders stick to their trading plan without being influenced by short-term volatility or impulsive decisions.

Disadvantages and Precautions of Pending Orders

1. Market Volatility Risks

Forex markets are highly volatile. Sudden price movements may cause Pending Orders not to execute at the desired price, resulting in Slippage.

2. Missed Trading Opportunities

If the market does not reach the set price level, the order will not trigger, and traders may miss profitable trades. This can be frustrating, especially in fast-moving markets.

3. Unexpected News Events

Economic news or major events can cause sharp market fluctuations, potentially skipping over Pending Orders and leading to unexpected losses.

4. Overly Complex Strategies

Relying too heavily on Pending Orders can complicate trading strategies. It is important to balance Pending Orders with technical and fundamental analysis.

How to Place Buy Stop and Buy Limit Orders on a Trading Platform

Step 1: Log in and select currency pair

• Log into your trading platform via app or website.
• Choose the currency pair you want to trade, e.g., EUR/USD.
• Find the menu on the right side and select the order type.

Step 2: Select Pending Order

• Click on “Pending Order” or “คำสั่งรอดำเนินการ”.
• Choose whether to place a Buy Stop or Buy Limit from the dropdown menu.

Step 3: Set order details

For Buy Stop:

• Price: Enter the activation price above the current market price.
• Lot Size: Specify the trading volume, e.g., 0.01 lots.
• Stop Loss: Set below the Buy Stop price to limit losses.
• Take Profit: Set above the Buy Stop price to lock in profits.

For Buy Limit:

• Price: Enter the order price below the current market.
• Lot Size: Specify the appropriate trading volume.
• Stop Loss: Set below the Buy Limit price.
• Take Profit: Set above the Buy Limit price.

Common Trading Mistakes to Avoid in Forex

( Not setting Stop Loss

Stop Loss is a crucial risk management tool. Not setting one can lead to significant losses if the market moves against your position.

) Not setting Take Profit

Take Profit locks in gains. Failing to set it may result in missing out on profits.

Using excessive leverage

Leverage allows trading with more money than in your account but increases risk. Over-leveraging can lead to rapid losses.

No clear trading plan

Trading without a plan can cause irrational decisions. It’s important to have clear goals and risk management strategies.

Poor risk management

Good risk management is vital for trading success. Always have a plan to handle losses and set Stop Loss to limit them.

Summary

Understanding Buy Stop and Buy Limit is fundamental for successful forex trading. Knowing when to use each order type gives traders an advantage in the market.

Proper use of Pending Orders, setting appropriate Stop Loss and Take Profit levels, and having a clear trading plan can significantly increase the chances of success in forex trading.

Most importantly, maintain discipline, follow your plan, avoid emotional decisions, and learn from each trade to improve your trading skills.

Remember that trading forex involves risks and may not be suitable for everyone.