online platforms execute on the basis that a limit order to sell is filled when the bid price reaches the order rate and a limit order to buy is filled when the offer price reaches the order rate. In the case of stop losses, a stop-loss order to sell is triggered if the bid price reaches the order rate, and a stop order to buy is executed if the offer price reaches the order rate. In both cases, the dealing spread works against the order, and traders need to take that into account.
Here’s my question. So this means that when I place an order to buy (expecting the price to fall to that point and reverse), it will get filled at 1.0000 in 1.0005/1.0000 USD/CHF and when I place an order to sell, it will get filled at 1.0005 in 1.0000/10005 USD/CHF, yes?
But when the time comes to hitting a point where I take profit, then on a buy order, the price that gets filled will be at 1.0015 in 1.0010/1.0015, yes?
In addition to memorizing a complex menu of order types, you also have to burn this into your mind:
• You always BUY at the ASK PRICE (this is ALWAYS the higher price in a quoted spread), and
• You always SELL at the BID PRICE (this is ALWAYS the lower price in a quoted spread)
[B]Those rules apply whether you are buying (or selling) on a market order, on a stop order, or on a limit order.[/B]
Now, on to your questions:
First of all, when a price is quoted in BID/ASK format, it is customary to quote the lower (BID) price first, followed by the higher (ASK) price. So, your question should have stated the quoted price as 1.0000/1.0005. Or, simply, 1.0000/05.
As for your question: Your buy limit order must include the price at which you want to buy, but you did not specify that price. I’m guessing that you intend to buy at 1.0000.
If the market is above 1.0000, and you want to buy when it falls to 1.0000, then you will place a limit order to buy at 1.0000.
Your order will be filled when the ASK PRICE falls to 1.0000.
Notice that, as the market price is falling, the BID PRICE will fall to your 1.0000 order price first. At that point, the quoted spread will be 1.0000/05, [B]but your buy limit order will not be triggered.[/B]
When the price falls further, and the quoted spread becomes 0.0095/1.0000, [B]then your buy limit order will be triggered,[/B] and you will have bought at the ASK PRICE of 1.0000.
Now, you’ve lost me. Are we talking about a sell limit order, now? If so, that means that the market is below the price specified in your order, and you intend to sell when the market rises to that price. Is that what you mean?
If you intend to take profit at 1.0015, then you will place a sell limit order at 1.0015.
As price rises toward your target price, the ASK PRICE will reach 1.0015 first, [B]but your sell limit order will not be triggered.[/B]
As price rises further to 1.0015/20, [B]then your sell limit order will be triggered[/B] at the BID PRICE of 1.0015.