A buy limit order is a trading instruction that enables you to set 𒆙a maximum price for a security. Unlike market orders that execute immediateꦦly at the present price, buy limit orders tell your brokerage platform not to buy a stock or other asset until it reaches a given price.

For example, suppose you think that a stock trading at $50 is priced too high. Rather than buying right away, you can place a buy limit order at $48. Below, we take you through how t🦄hese orders work and the pros and cons of using them.

What Is a Buy Limit Order?

A buy limit order instructs your platform to buy a stock at a specific price or lower. 

A buy limit order ensures that you pay no more than the price you set. The main drawback is that if the price doesn't drop low enough to match your order, you might be left without the stock should it rise above its 🧸cu♊rrent price.

How To Place a Buy Limit Order

To set up a buy limit order, you just input the key parts of any order: the stock or security to buy, the price you're willing to pay (in this case, the limit price), and the order's duration (e.g., day-only or 澳洲幸运5官方开奖结果体彩网:good-till-canceled). Should the market price reach yours, the order executes at the best available price within the given limit.

Here are the steps:

1. Choose the security: Select the specific stock or asset you want.
2. Set the limit price: Determine the maximum price you're willing to pay.
3. Specify the order duration: Decide whether the order should be active for a single trading day (day order), until canceled (good-till-canceled), or for another duration.
4. Place the order: Submit the order through your broker's platform, double-checking you've entered everything correctly.
5. Monitor the open order: The order remains pending until the market price matches or falls below your limit price. If no sellers meet your criteria, the order won't go through.

Benefits of Buy Limit Orders

• You control the price you pay: A buy limit order lets you set a maximum price you are willing to pay for a stock. So if an investor sets a limit price of $50, the order will only execute at $50 or lower. This way, you avoid overpaying.
• They help 澳洲幸运5官方开奖结果体彩网:manage your risk: In addition to only executing at a certain price, a buy limit order can help keep your trading disciplined, especially in volatile markets.
• They help automate your trading: Automated execution that buy limit orders provide helps remove the emotion from your trading.

Drawbacks of Buy Limit Orders

• Execution uncertainty: If the market price doesn't reach your limit price or if other orders in the queue are first, the trade won't go through. This can result in missed opportunities, especially in fast-moving markets where prices might only briefly touch the limit but fail to execute because there aren't enough shares on hand for your spot in the queue.
• Price gaps: In volatile markets, especially when there's a lot of movement in 澳洲幸运5官方开奖结果体彩网:overnight trading, prices can skip over the limit price, leaving the order unexecuted. For example, if a stock’s price jumps from $49 to $51 overnight, a buy limit order set at $50 would remain unfilled since a buy limit order instructs your broker to buy a stock only at or below a specific price (your limit price).

The Bottom Line

Traders use buy limit orders to ensure that they only buy a stock or other security should the price decline. This helps avoid overpaying and helps traders stay disciplined, especially in𝔍 volatile markets. However, it has drawbacks, such as the risk of not going through because the stock price never reaches the limit, which can cause you to miss out on a stock rising above the market price where you set the limit order.