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Knowledge base: ECN
Types of Orders: Limit Orders
Posted by on 29 January 2014 03:35 PM

This type of order allows you to control the price at which the position will be bought or sold. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher, meaning that if your order will get filled it will get filled at a price you indicated or better. When you place a market order, you can't control the price at which your order will be filled. True ECN pricing means that you will see the best BID and best Offer (ASK) as they appear from clients and Liquidity Providers who participate in ECN.

According to the principles of ECN Limit Orders:

  • Lowest Bid price or lower to Short (Sell) Limit Orders, can be lower than Lowest Ask price, in another words, inside the DAB - referring to the difference between the best BID and the best Offer (ASK);
  • Highest Ask price or higher to Long (Buy) Limit Orders, can be higher than Highest Bid price, in another words, inside the DAB - referring to the difference between the best ASK and the best BID;
  • During times of high volatility Limit Orders or Take Profits, even if set at best Bid or Ask levels, might not get executed because the market has already moved.

Example 1

A Buy Limit Order was placed exactly at the Best Ask but market price changed direction quickly. The Buy Limit Order wouldn't be executed and would become pending until the market price returned to that level or the Order was changed. ECN Brokers transmit their clients' Limit Orders to the Marketplace. Participants of the ECN can see all Limit Orders and Take Profits Orders in the Market Depth table.

Example 2

A Client wants to place a Buy Limit Order of AUD/NZD at 1.24200 of a volume of 7.0 standard Lots (see Fig.1). The DAB when the order was placed was: Bid - 1.24170 and Ask – 1.24230 (see Depth of Market window Fig. 1). After the Buy Limit Order was successful placed – 1.24200 with a volume of 700,000 AUD became the Best Bid order level (see Depth of Market window Fig. 2) which means that Buy Limit Order was added to the ECN Order Book.

Fig. 1

Fig. 2

Stop Loss and Take Profit orders can be attached to a Limit order (See Fig. 3). After a Limit order is triggered, its Stop Loss and Take Profit levels will be attached to the open position automatically (see Fig. 4).

Fig. 3

Fig. 4

Limit Orders make up the book of viewable volume at which clients want to buy or sell at a given time. During periods of high volatility or low liquidity, Limit Orders may be partially executed. This means that the position will get filled immediately fully or partially if the price is met and the rest will be displayed on the market until the price is met.

Example 3

Client placed a Buy Limit Order of AUD/NZD at 1.24227 for 30 standard lots of the volume. See appropriate Journal entry on the (Fig. 5).

Fig. 5

The Buy Limit Order was executed partially because at the time the market touched the limit price the ECN did not have a matching counter-order of 30 lots on the market. One 30 lots Buy Limit Order was displayed in the market and was gradually filled by 7 orders as they were entered by other market participants at the Limit Price, see Fig. 6.1 - Trade and Fig.6.2 - Account History.

Fig. 6.1

Fig. 6.2
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