There are two kinds of limit orders: 1. Limit order opening. The first is limit order order to get a better price.
If/trades at 1.1294 and you think it will fall to 1.1200 before it rebounds, you can buy a limit order at 1.1200.
If EUR/USD trades at 1.12939 and you think it will rally to 1.1300 before selling, you would place a limit order to sell 1.1300.
When using a limit order, you will only trade at the price you specify or better.
2. Liquidate a limit order You can also use a limit order to close a trade if the market moves a specified amount in your favor.
If you bought EUR/USD at 1.1300 and want to exit when your trade shows a profit of 100 points, you can set your sell limit order to 100 points above your entry point or at the 1.1400 level.
If you sell EUR/USD at 1.1300 and want to exit when your trade shows a profit of 100 points, you can place a buy limit order at 100 points below your entry or at the 1.1200 level.
With limit orders, the trader basically gives the broker a fixed instruction to execute his order at a specified price.
Suppose YOU WANT TO BUY EUR/USD AT 1.1730 AND THE MARKET PRICE is 1.1740. In this case, use a limit order and specify that you want to add 1.1730.
Of course, limit orders will not be executed immediately unless the price falls below 1.1730.
Limit orders help traders execute trades at their desired prices, rather than opening positions at current market prices.
Similarly, if you want to short EUR/USD at a specified price, you can use a sell limit order.
As long as the market price reaches the level specified by you, the order will be executed at the specified price.
But if the market price does not reach the level specified in the limit order, the order will not be executed.
Having said that, a trader should try to open a position at a reasonable price for a limit order to be effective.