If you want to make a profit or reduce loss, the investing world offers tools at your disposal. You stock broker has them, and you can use them by choosing the right tool to do the right job. A limit order is just one of them.
What’s a Limit Order
These Online Trading Platform stock market tools give you the power to choose when and how much you will buy or sell. As for a limit order, it limits the price at which you are willing to pay or the price at which you are willing to sell.
Simply put, you are telling the market that you will only buy or sell at this certain price.
This one’s quite different from a market order, which tells the market to execute your buy or sell order right away with no regards to the price. Unlike a market order, a limit order may not be on the top of your stockbroker’s execution list. If, for instance, the price on your limit order is the most ideal ask or bid price, it may possibly go to the top and may be filled fast.
Otherwise, it will be ranked among the other orders away from the market. While the other orders are filled, your limit order can make its way to the top. However, other better orders may still slip in and push your order down the list.
Limit orders can be considered your best tool because it can give you the discipline training you need when buying and selling. It can also fix a price that you can live with for some time. However, these orders also have their flaws.
A limit order typically has five components. The first is the buy or sell, then the number of shares, then security, fourth is the order type, and lastly, the price.
For instance, if you aim to buy 200 shares of company A using a limit order, you would express it like this:
Buy 200 shares Company A limit 50.45.
This order tells the market that you will purchase 200 shares of company A, but you will not be paying more than $50.45 per share.
You have to remember that limit orders are not absolute orders. Using the example above, you limit order to buy company A at $50.45 per share can’t be filled above that price but can be filled below that price. Forex Online Review If the stock’s price slides below you limit before it is filled, you can potentially pay below $50.45 per share.
It also works like this for limit sell orders. If you enter a limit sell order for $50.45, if won’t be filled below that amount. On the other hand, if the stock appreciates above that price before the order is filled, you could get more than your limit price.
Like many other skills, the proper placement of limit orders—whether buy or sell—for stocks should take a while before you can furnish your technique. If you set limit buy orders too low, chances are they may never be filled. And that’s not good. This also goes for limit sell orders. With some more experience, you can hunt for a level that gives you a good price and your order filled.