What Is a Limit Order?

A limit order i♊n the financial markets is an instruction to purchase or sell a stock or other secu💜rity at a specified price or better. A limit can be placed on either a buy or a sell order:

• A buy limit order will be executed only at the limit price or lower.
• A sell limit order will be executed only at the limit price or higher.

Lim♓it orders will be executed only if the price meets the or♌der qualifications.

The alternative to a limit order is a mark♛et o🦄rder, which calls for a trade to be executed at the prevailing market price without any price limit specified.

How Limit Orders Work

A limit order allows traders to set a pre-determined price to buy or sell a security. For example, imagine a trader who wants to buy stock in XYZ company, cu♔rrently trading for $17.00. If the trader sets a limit buy order at $14.50, they will only buy the stock if the share p🦋rice falls to $14.50 or lower.

Conversely, the 𒀰trader might have shares of XYZ’s stock and want to sell them if the price increases. The trader might set ⛄a limit sell order at $20, which will only sell the shares if the price rises to $20 or higher.

By 澳洲幸运5官方开奖结果体彩网:using a buy limit order, the investor is guaranteed to pay the buy limit order price or better, but it is not guaranteed that the order will be filled. A limit order gives a trader more control over the 澳洲幸运5官方开奖结果体彩网:execution price of a security, especially if they are fearful of using a 澳洲幸运5官方开奖结果体彩网:market order during periods of heightened 澳洲幸运5官方开奖结果体彩网:volatility.

Limit orders are useful when prices are rising or falling quickly, and the trader is worried about getting ꧙a bad fill from a market order. Additionally, a limit order can be useful if a trader is not watching a stock and has a specific price in mind at wh🌞ich they would be happy to buy or sell that security. Limit orders can also be left open with an expiration date.

Limit Order Example

Imagine a portfolio manager who wants to buy Tesla Inc.'s (TSLA) stock but believes its current valuౠation at roughly $75❀0 per share is too high. The manager would prefer to buy the stock at a lower price.

The PM instructs his traders to buy 10,000 shares of Tesla should the price fall below $650, 澳洲幸运5官方开奖结果体彩网:good 'til canceled. The trader then places an order to buy 10,000 shares with a $650 l🍨imit. If the stock falls below that price, the limit order will automatically execute and buy up to 10,000 shares for $650 per share or lower. The order will remain open until the stock reaches the PM’s limit or the PM cancels the order.

Additionally, the PM would like to sell Amazon.com Inc.'s (AMZN) stock but feels its current price of roughly $2,300 is too low. The PM instructs his trader to sell 5,000 shares should the price rise above $2,750, goꦫod until canceled. The trader will then place a limit꧒ sell order for 5,000 shares with a $2,750 limit.

Limit Orders vs. Market Orders

When an investor places an order to buy or sell a stock, there are two main execution options in terms of price: place the order "at the market" or "at the limit." Market orders are transactions meant to be executed as quickly as possible at the present or market price. Conversely, a limit order sets the maximum or minimum price to buy or sell an asset. Brokers will frequently set higher fees fꦛor completing the more complicated limit order.

Buyingᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ stocks can be thought of as an analogy to buying a car. With a car, you can pay the dealer’s sticker price and get the car, or you can negotiate a price and refuse to finalize the deal unless the dealer meets your price. The stock market can be thought of as working in a similar way.

A market order deals with the execution of the order; The price is secondary to the speed of completing the trade. Limit orders deal primarily with the price. If the security's value is currently outside of the parameters set in the limit order, the transaction does not occur.

Explain Like I'm Five

Trad🦹ers use limit orders to set their prices for buying or selling an asset. Instead of having to constantly watch the market for price changes, they can set a limit order that automatically executes when the price reache🦂s the desired level.

A limit order will only execute at the limit price or better. If you set a limit buy order of $5, it will only buy the asset if the price falls to $5 or lower. If you set a limit se💙ll order of $10, it will sell the asset if the price reaches $10 or higher.

The Bottom Line

A limit order is one of several order types that traders can choose from when buying or selling assets. While market orders are executed immediately, a limit order is only executed if the price reaches a certain level or better. This allows investors to automate their trades, instead of constantly wat𝔍ching the market for price changes.