A Limit Order is a profit-taking tool, which instructs your trade to close once a specified price has been reached.
Limit Orders allow you to set a profit target, either to an existing position or when opening your trade. These Orders may also protect you from the market turning after your desired price has been reached, which could potentially wipe out your profits.
IG Markets offers a range of Limit Orders, which are available both by phone and online.
Example of a Limit Order
It’s November 7, 2011 and Commonwealth Bank (CBA) shares are priced at $49. You think they have room to rise, so you buy 700 shares as a CFD at $49. The total value of your position will be $34,300 (700 shares x $49), but with a margin requirement of 5% of the value of your position, you are able to open your position with a deposit of just $1,715 (0.5% of $34,300).
You place your Limit Order at $49.95. This means that if the share price reaches or exceeds $49.95, your Order will be triggered and subsequently executed. In this case, your position is closed at a level of $49.95 and makes a gross profit of $0.95 a share.
Over the next three days the share price rises to $50.14 before falling back to $48.39 on November 10. However, by placing a Limit Order you were protected when the market turned; your Limit Order was automatically triggered and your trade subsequently closed at a level of $49.95, realising a gross profit of $0.95 a share.
Gross profit on trade
| Opening level | $49.00 |
| Closing level | $49.95 |
| Difference | $0.95 |
Gross loss on trade: $0.95 x 700 = $665
To determine your net profit, you would also have to take the opening and closing commission charges, any dividend payments, and overnight financing charges into consideration.
It is important to understand that a Limit Order is a type of non-guaranteed order and we will exercise our reasonable discretion to determine when non-guaranteed orders are triggered and the level at which they are executed.