Order Types
What is a Limit-if-Touched Order and How Does it Work?
Apr 10, 2023

What is a limit-if-touched order and how does it work?
As a new trader, you may have come across the term "limit-if-touched order" while exploring trading strategies. But what exactly is a limit-if-touched order, and how does it work? In this post, we'll provide an overview of limit-if-touched orders, including what they are, how they work, and when they might be useful for traders.
What is a Limit-if-Touched Order?
A limit-if-touched order is a type of order that combines the features of both limit orders and stop orders. Essentially, a limit-if-touched order allows you to specify both a trigger price and a limit price. If the market reaches the trigger price, the limit-if-touched order becomes a limit order to buy or sell at the limit price or better.
For example, let's say you want to buy a stock that is currently trading at $50 per share, but you only want to purchase it if it drops to $45. You could place a limit-if-touched order with a trigger price of $45 and a limit price of $46. If the stock falls to $45, the order would be triggered, and you would buy the stock at a limit price of $46 or better.
How Does a Limit-if-Touched Order Work?
When you place a limit-if-touched order, you specify both a trigger price and a limit price. The trigger price is the price at which the order will be triggered, while the limit price is the price at which you want to buy or sell the asset.
If the market price reaches the trigger price, the limit-if-touched order becomes a limit order to buy or sell at the limit price or better. For example, if you have a limit-if-touched order to buy a stock with a trigger price of $45 and a limit price of $46, the order will become a limit order to buy the stock at $46 or better if the stock price drops to $45.
It's important to note that limit-if-touched orders are not guaranteed to be filled. If the market price does not reach the trigger price, the order will not be triggered, and you will not buy or sell the asset.
Why Are Limit-if-Touched Orders Useful?
Limit-if-touched orders can be useful for several reasons. Here are a few key benefits:
1. Precision
One of the main benefits of using a limit-if-touched order is that it allows you to be very precise with your trading strategy. By setting both a trigger price and a limit price, you can specify exactly when you want to buy or sell an asset and at what price.
2. Risk Management
Limit-if-touched orders can also be useful for risk management. By setting a trigger price that is lower than the current market price (if you're buying) or higher than the current market price (if you're selling), you can limit your potential losses if the market moves against you.
3. Flexibility
Limit-if-touched orders also offer flexibility. You can set the trigger price and limit price to tailor your order to your specific trading strategy. This can help you achieve your trading goals and minimize risk.
4. Automation
Finally, limit-if-touched orders can help automate your trading strategy. Instead of having to constantly monitor the market and manually place orders, a limit-if-touched order will automatically trigger if the market reaches your specified trigger price.
Conclusion
In conclusion, limit-if-touched orders are a useful tool for traders who want to be precise with their trading strategies, manage risk, and automate their trading. By combining the features of both limit orders and stop orders, limit-if-touched orders can help you execute your trades at specific prices while also limiting your potential losses. However, it's important to note that limit-if-touched orders are not guaranteed to be filled and there is always the risk of slippage or other market factors that can affect the execution of your order.
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