A limit order is a type of trading order that allows traders to specify the exact price at which they want to enter or exit a position. Unlike market orders, limit orders offer greater control over the execution price, minimizing the risk of slippage and maximizing potential profits. There are two types of limit orders: entry orders, which open a new position, and closing orders, which terminate an open position.
By using both, traders can automatically execute a trade at a certain level instead of constantly monitoring the price of an underlying asset. However, limit orders also come with some potential drawbacks, such as execution uncertainty, slower execution, and the possibility of partial fills.
It is important to carefully monitor market conditions, consider using other order types when appropriate, and continually refine strategies based on experience and market analysis. Limit orders are a useful tool for traders who are not in a rush to buy or sell and want to get better selling and buying prices, especially when placed on major support and resistance levels.