There are many tools you can use when investing in the stock market to help you make a profit or reduce a loss. The different types of orders to your stockbroker are a toolkit that lets you pick the right tool for the right job.

Limit Orders When Buying or Selling Stock Options

The limit order limits the price you are willing to pay or the price at which you are willing to sell. Unlike the market order , which executes your buy or sell immediately regardless of price, the limit order may or may not go to the top of the list for execution by your stockbroker. If the price on your limit order is the best ask or bid price, it will go to the top and may be filled very quickly.

If it is not, it will slot in among the other orders that are away from the market. As other orders are filled, your order may work its way to the top.

On the other hand, better orders may come in and push your order down the list.

Limit orders are a trader's best friend because they provide discipline to buying and selling and fix a price the trader can live with in most cases, but they do have some flaws.

The important point is that your order will only be filled at your price or better.

Limit Orders | Scottrade

A limit order, whether given to a stockbroker or entered into your advanced trading platform, has the same five components:. For example, if you wanted to buy shares of XYZ using a limit order, here's how you would express it:.

An important point to remember about limit orders is they are not absolute orders. It works the same way on the limit sell order. However, if the stock rises above that price before your order is filled, you could receive more than your limit price. It will take some experience to know where to set limit orders. If you set limit buy orders too low they may never be filled, which does you no good.

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The same is true for limit sell orders. With some experience you'll find the spot that gets you a good price and your order filled. The simple limit order could be a problem for traders or investors not paying attention to the market.

For example, you enter a sell limit order on a stock that is a few dollars per share over the market price and a buy limit order a few dollars per share under the market. This way you will make a profit if the stock rises and add to your holdings if the stock dips. Not a particularly inspired trading strategy, but one that seems to have your bases covered.

You take off for a long weekend and return on Monday to find your sell limit order has been filled. You can imagine the reverse of this scenario if the stock dropped like a rock and your buy limit order filled as the stock was in a free fall.

The point is simple limit orders are excellent tools, but they are not foolproof.

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In a highly volatile market , limit orders like the example above may be tricky. Be sure you can live with the results. If you want to buy or sell a stock, set a limit on your order that is outside daily price fluctuations and live with the outcome. Search the site GO. Stocks Active Stock Trading Trading Basics Understanding Stocks Evaluating Stocks Retail Stocks.

Updated December 14, These stock market tools let you choose when and for how much you will buy or sell a stock. One of the most important tools in your stock buying toolkit is the limit order.

Either way you have some control over the price you pay or receive. Get Daily Money Tips to Your Inbox Email Address Sign Up. There was an error. Please enter a valid email address. Personal Finance Money Hacks Your Career Small Business Investing About Us Advertise Terms of Use Privacy Policy Careers Contact.