When you want to buy or sell stocks, there are different types of orders you can use to place your trades. One of the most common types of orders is a limit order. In this article, we’ll explore how limit orders work and when you might want to use them.
A limit order is an order to buy or sell a stock at a specific price or better. When you place a limit order to buy, you set the maximum price you’re willing to pay for a stock. When you place a limit order to sell, you set the minimum price you’re willing to accept for the stock. The order will only be executed if the market price reaches your specified price or better.
For example, let’s say you want to buy shares of XYZ Company, which is currently trading at $50 per share. You want to buy the shares, but you’re only willing to pay up to $55 per share. You can place a limit order to buy 100 shares of XYZ at a limit price of $55. If the market price for XYZ goes up to $55 or lower, your order will be executed, and you’ll buy the shares at your specified price or better.
On the other hand, if you want to sell shares of XYZ Company, which is currently trading at $50 per share, but you only want to sell if the price reaches $60 or higher, you can place a limit order to sell 100 shares of XYZ at a limit price of $60. If the market price for XYZ reaches $60 or higher, your order will be executed, and you’ll sell the shares at your specified price or better.
One important thing to note is that limit orders are not guaranteed to be executed. If the market price doesn’t reach your specified price, your order may not be executed at all. In contrast, a market order is an order to buy or sell a stock at the best available price in the market at the time the order is placed. Market orders are more likely to be executed, but they may not be executed at the exact price you wanted.
Limit orders are useful when you want to set a specific price for your trade and don’t want to pay more than you’re willing to for a stock, or receive less than you’re willing to for a stock. They’re also useful when you want to trade stocks that have low liquidity or high volatility, where the market price can fluctuate quickly.
A limit order is an order to buy or sell a stock at a specific price or better. When you place a limit order, your trade will only be executed if the market price reaches your specified price or better. Limit orders are useful when you want to set a specific price for your trade and don’t want to pay more than you’re willing to for a stock, or receive less than you’re willing to for a stock. However, it’s important to note that limit orders are not guaranteed to be executed, and you may miss out on a trade if the market price doesn’t reach your specified price.