Difference between Buy Stop and Buy Limit
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Thread: Difference between Buy Stop and Buy Limit

  1. #1
    potaire is offline Senior Member
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    Default Difference between Buy Stop and Buy Limit

    Same thing for Sell Stop and Sell Limit---not sure I understand the difference.
    For one, does it matter if it is called a "Sell Stop" vs a "Stop Sell"? Different brokers have different terms, and all that stuff. Now, as to the diff between the "Stop" and the "Limit"---say I wanted to BUY. My understanding is I would use a "Buy Stop (at specific price)" if the price was already going up--kinda like a bus stopping to pick me up and then continuing on in same direction. On the other hand, if the price was going down I would use a "Buy Limit (at specific price)" which would place the buy when price dropped to that specific point, and I'm hoping the price will have reached it's downward limit and turn back up. This would be like the bus picking me up at the end of it's route, then turning around and going the other way, which is what I wanted.

    Do I have the jist of this?? Of course, on Aug. 1st everything changes anyways.

    Potaire

  2. #2
    Jason Rogers's Avatar
    Jason Rogers is offline Verified Broker Support and Analyst for FXCM FX-Men Honorary Member
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    Quote Originally Posted by potaire View Post
    Same thing for Sell Stop and Sell Limit---not sure I understand the difference.
    For one, does it matter if it is called a "Sell Stop" vs a "Stop Sell"? Different brokers have different terms, and all that stuff. Now, as to the diff between the "Stop" and the "Limit"---say I wanted to BUY. My understanding is I would use a "Buy Stop (at specific price)" if the price was already going up--kinda like a bus stopping to pick me up and then continuing on in same direction. On the other hand, if the price was going down I would use a "Buy Limit (at specific price)" which would place the buy when price dropped to that specific point, and I'm hoping the price will have reached it's downward limit and turn back up. This would be like the bus picking me up at the end of it's route, then turning around and going the other way, which is what I wanted.

    Do I have the jist of this?? Of course, on Aug. 1st everything changes anyways.

    Potaire

    Hi Potaire,

    I always remember this by thinking of breakouts and range trading.

    If you're setting up orders for a breakout, then you're going to use a buy stop and sell stop order. You think the market will continue in the same direction.

    If you're setting up orders for a range trade you will use a buy limit order to buy at the bottom of the range or sell limit order to sell at the top of the range.

    That's just how I remember it.
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  3. #3
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    equilibrium is offline Junior Member
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    With a "Buy Stop" order, you place an order above where price currently is,

    With a "Buy Limit" order, you place a buy order below where price currently is.


    Same for sell orders only in reverse.


    With "stop" buy/sell orders, you can get a bit screwed. A "stop" buy/sell order effectively means that after "x" price (where you placed the order), you want get into the market no matter the price. You can get a price worse than you expect. Say market is at 1.4200 and you have a buy stop order at 1.4220. If price starts going up very fast, you can only get filled at 1.4225 or even worse if the move is fast enough. Besides, you can get screwed by the broker.


    With "limit" buy/sell orders, guess what you can also get screwed. A "limit" order means you will only buy/sell at "x" price or a price better than that. For example the market is at 1.4200 and you place a limit sell order at 1.4220. That means you'll only buy at 1.4220 or (better) a higher price, which means you don't need to worry about getting a worse than expected price. But the situation may happen where price reaches your level, in this case, 1.4220, starts going down in your direction, but you didn't get filled because of your broker.

    That's one of the reasons why knowing how is the execution with one's broker isvery important.


    So buy/sell STOP orders = at whatever price, no matter how bad, after X.

    Buy/sell LIMIT orders = only prices better than X.



    it's a bit messy in the beginning but once you go through the ah-ha moment then it gets very easy to distinguish the orders and it will all become clear.
    Last edited by equilibrium; 07-20-2009 at 08:07 PM.
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    Andrewunknown's Avatar
    Andrewunknown is offline Superior Master Contributor and Member
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    There's a nice little mnemonic device for this:

    OSLOBS = Open Sell Limit/Open Buy Stop

    Price

    OBLOSS = Open Buy Limit/Open Sell Stop

    And then there's understanding how Stop and Limit orders function, which Equilibrium just about summed up.

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    TREVPICK001 is offline Senior Member
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    Quote Originally Posted by potaire View Post
    Same thing for Sell Stop and Sell Limit---not sure I understand the difference.
    For one, does it matter if it is called a "Sell Stop" vs a "Stop Sell"? Different brokers have different terms, and all that stuff. Now, as to the diff between the "Stop" and the "Limit"---say I wanted to BUY. My understanding is I would use a "Buy Stop (at specific price)" if the price was already going up--kinda like a bus stopping to pick me up and then continuing on in same direction. On the other hand, if the price was going down I would use a "Buy Limit (at specific price)" which would place the buy when price dropped to that specific point, and I'm hoping the price will have reached it's downward limit and turn back up. This would be like the bus picking me up at the end of it's route, then turning around and going the other way, which is what I wanted.

    Do I have the jist of this?? Of course, on Aug. 1st everything changes anyways.

    Potaire
    click on this link it show a great picture of what you need to know

    Forex with Alpari (UK) - New to Market - MetaTrader User Guide - Pending Orders
    YOU ALWAYS KNOW YOU HAVE BEEN DONE A WEEK LATER
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    Cdawg is offline Master Contributor and Member
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    Quote Originally Posted by equilibrium View Post

    With "stop" buy/sell orders, you can get a bit screwed. A "stop" buy/sell order effectively means that after "x" price (where you placed the order), you want get into the market no matter the price. You can get a price worse than you expect. Say market is at 1.4200 and you have a buy stop order at 1.4220. If price starts going up very fast, you can only get filled at 1.4225 or even worse if the move is fast enough. Besides, you can get screwed by the broker.


    With "limit" buy/sell orders, guess what you can also get screwed. A "limit" order means you will only buy/sell at "x" price or a price better than that. For example the market is at 1.4200 and you place a limit sell order at 1.4220. That means you'll only buy at 1.4220 or (better) a higher price, which means you don't need to worry about getting a worse than expected price. But the situation may happen where price reaches your level, in this case, 1.4220, starts going down in your direction, but you didn't get filled because of your broker.
    My broker has never screwed me out of a stop or limit order. You have to pay the spread no matter what, and its not your brokers fault if you dont account for that. so in your example, If you really wanted to buy/sell at 1.4220 then your limit would be set at 1.4220 - spread.

    Anyway Limit orders are used when you expect the price to reverse from a prticular price range and Stop orders are used when you expect the price to continue.

    Both are useful trades once you are familular with the currency your trading and S & R levels..

    Cheers

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    Andrewunknown is offline Superior Master Contributor and Member
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    My fault for not reading the earlier post closely enough.

    The nature of a limit order is such that price may trade at your order price but not fill because order flow is finite in quantity at any specific price. In other words, price may not trade long enough or with sufficient interest at your limit price to reach where your order is in line. Rather than moving your fill down the line, the order remains dormant. This isn't a case of your broker "screwing" you; it's a case of time and circumstance not working in your favor on an impartial basis.

    Stops trigger at the designated price, becoming market orders, which by definition are filled at the next available price. Here, your fill is moved as far as necessary to accomplish your "at market" request. Notice the words there: "at market". Because there's no time guarantee, there's no price guarantee. The only "screwing" here involves the trader being unaware of what risks the chosen order type may entail. As Cdawg mentioned, the spread will determine where your stop or limit order will trigger. It's a bit tedious, but important to figure out how this works if you intend to use these order types.

    In short, another adage: Limit orders guarantee price, not execution. Stop orders guarantee execution, but not price (guarantee on execution does not apply to highly illiquid issues).

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    potaire is offline Senior Member
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    Outstanding!! Many thanx, one and all. I guess my bus analogy is on target----stops for continuing on in same direction and limits for expected price reversals.

    Thanx,

    Potaire

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    poker face is offline Newbie
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    hmmm this is what i wanted to know , thanks

  10. #10
    Clint's Avatar
    Clint is offline FX-Men Honorary Member
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    Quote Originally Posted by poker face View Post

    ....this is what i wanted to know , thanks
    poker face, welcome to the forum. As you may be aware, the thread you are replying to has been inactive for over 2 years. There's nothing wrong with resurrecting old threads, but the people who were posting then may have moved on.

    Anyway, on the subject of stop and limit orders, here's a link to a table I made for myself years ago, and subsequently posted on a couple of different forums. It may give you the overview you're looking for --- stop and limit orders
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