Last night when I was chatting with an ex-collegue of mine over a glass of "nescafe tarik", he had a question on the various definations of Limit & Stop orders (we were discussing about the merits of Market & Limit orders when opening a new trade).
Wan Hashim, if you're reading this, here they are:
A BUY LIMIT order is executed if the Ask is equal or lower than the order level.
A SELL LIMIT order is executed if the Bid is equal or higher than the order level.
A BUY STOP order is executed if the Ask is equal or higher than the order level.
A SELL STOP order is executed if the Bid is equal or lower than the order level.
I personally do not have to grapple with all of the above definations, simply because my broker's platform (it's OANDA by the way) only has MARKET or LIMIT orders.
I always use Limit orders whenever I open a new trade. This is because I need to know the precise price level that I intend to enter, in order for me to calculate the right position size for the amount of risk that I'm willing to take for each trade.
When closing my positions however, I do sometimes use a market order to quickly kill my trades, when required.
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