Buy limit orders are a special type of order regular traders use, that can have significant impact on your binary options trading.
Binary options traders should therefore know what buy limit orders are and where there are likely to occur. Combined with an understanding of stop loss orders, buy limit orders can provide a binary options trader with a number of good investment opportunities.
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What is a buy limit order?
A buy limit order is an order to buy an asset at a specified price or below. By placing a buy limit order, a trader can ensure that he does not pay more than a certain price to buy an asset.
If a stock is currently trading at a price of $100, but a trader is not willing to pay more than $95 for the stock, he can place a buy limit order at $95. As soon as the market reaches the target price, the buy limit order turns into a market order and is executed immediately.
The trader is therefore guaranteed to pay his predefined price or less. He is, however, not guaranteed that his order will ever be executed. If the market never reaches $95, his order will never be triggered.
Because of the special nature of buy limit orders they occur in bunches in significant places. A trader looking to invest in a resistance level, for example a trend line in an uptrend or the lower resistance in a continuation pattern, could use a buy limit order to automatically open a new position once the market moves near the resistance. The trader can then benefit from the likely turnaround.
How to profit from buy limit orders with binary options
Buy limit orders occur in bunches around significant price levels like support levels. If they get triggered, there will be sudden increase in demand. Prices are determined by the relationship of demand and supply, which means that a sudden increase in demand will also lead to a sudden increase in prices.
If you are able to spot price levels where many buy limit orders are triggered, you can use the sudden price increase they generate to invest in a binary option.
Depending on your trading strategy, you could use a High option to profit from the increasing price. If you can anticipate the range of the movement, either by experience or using additional instruments such as technical indicators, you can also use a Touch option or even a Boundary option and make an even bigger profit.