Using limits

Limits are useful for controlling how much you pay or make on a trade. When used properly – often in combination with stops to enforce a particular risk-reward ratio – they’re a very useful tool for your trading.

Using a limit-close

A limit-close order, also known as a take-profit order, lets you decide ahead of time where you want to lock in profits.

If you think a market’s price is going up, your limit order would be above the price you paid to enter the trade. And if you think it’ll go down, you’d place the limit order lower than the entry price.

You can set limit-close orders in the ‘deal’ tab of the deal ticket. Let’s take a look at an example.

Setting a limit-close order gives you greater control over the profit you want to take from any trade. You can use them to manage the ‘reward’ part of your desired risk-to-reward ratio. We’ll look at using limits together with stops in more detail later.

Many traders get so excited when a trade goes in their favour that they exit the position too early. Deciding where you want to take profit before you open a position helps counteract that instinct.

Using a limit-entry

A limit-entry lets you enter a trade automatically at a better price. You’d use this if, for instance, you were bullish on a market but thought it was currently overpriced, or if you were bearish but thought the market was under-priced.

If you’re buying (going long), you’d place your limit-entry lower than the current market price. And if you’re selling (going short), it would be above.

You can place limit-entry orders in the ‘orders’ tab of the deal ticket. As with stop-entries, you’ll know when you place a limit-entry – the execution button will update automatically with the order type.

So you might use a limit order to open if your analysis indicates that a market will drop before rebounding (if you’re long) or rise before dropping (if you’re short). Essentially, you want to open a trade at that sweet spot of support or resistance before the change in direction.

Things to consider

Like stops, both limit-entry and limit-close orders are subject to slippage if the market gaps through the order you’ve set.

Slippage isn’t always negative, whereby your order gets filled at a worse price than you set. Positive slippage can happen, where your limit is executed at an even better price than you were expecting.

There’s also a possibility that your order won’t ever be executed if the market never reaches your specified level, as it would never be triggered.

When you use a limit to open, you’re placing an order against the current market trend – which is a risk. The market will likely move against you in the shorter term, so you might find that your order is triggered, only for your position to immediately go into loss. Remember to factor that in when you set up your trade to avoid exiting the market impulsively.

Using limits with stops to enforce your risk-reward ratio

Using stops and limits together can give you a balanced risk-to-reward ratio.

If you wanted to trade with a 1:2 risk-to-reward ratio, you’d place your limit order twice as far away from the opening price as you place your stop order. This means you’d only lose half of what you stand to gain.

It’s easy to see your risk-to-reward ratio per position in the platform. You’ll also be able to see your stop and limit levels and the amount of money you’ll win or lose if they’re triggered. Just click on your trade in the ‘positions’ tab, and take a look at its chart.

To change your stop or limit, just drag them to where you need them to be. Your risk-reward ratio will update automatically. You can set stops or limits on an open position like this, too.