Stock Limit OrderStock limit order definition. Buy, sell, stop and trailing stop limit orders explained. Can limit orders be changed?
What is a Limit Order?A limit order is a type of stock market order. When you limit order stock you are telling the market maker (MM) that you wish to buy or sell the designated number of shares at a specified price--the limit price--or a more favorable price.
Buy Limit Order ExampleLet's say you want to purchase 50 shares of Google (GOOG) at $476 per share and not a penny more. The stock is currently trading at $480 per share. You would enter $476 as the limit price when you place the order.If GOOG shares do not return to $476, your order will sit there unfilled. If the share price drops to $476, your order will fill at that price. (As long as there are enough buyers at that price level.) If the share price happens to fall through the limit price, your order could fill at a lower or more favorable price than the limit price. This is called price improvement and it doesn't happen regularly, but it's nice when it does.
Sell Limit OrderSell limit orders work the same way as buy limit orders only on the sell side of the trade. With a sell limit, a higher price than the limit price would be more favorable.Stop Limit OrdersThis is a combination of a stop loss order and a limit order.
Trailing stop order, stop loss order, and stop limit orders explained. What is a trailing stop limit order? The use of trading stop orders. Stock market stop orders.
Limit on Close OrderThis is an order to buy or sell a security at the closing price only if that price meets or is more favorable to you than the limit price. If these conditions are not met the order will not fill.Market vs Limit OrderMarket orders are guaranteed to fill immediately but there is no guarantee about the price you will get. With a market order, you are exposed to slippage--the difference between the price you expected and the price you got.A trader places a market order based on the current bid or ask. Because stock prices can move so quickly, the price can change between the time you click ORDER and the time the MM fills the order. Also, market orders give the MM the opportunity to bump up the price of the stock before filling your order. This is illegal and there are safeguards in place to prevent it, but it still happens. Stock limit orders protect you from these unpleasant and costly surprises. The downside is that a limit order is not guaranteed to execute.
Can Limit Orders Be Changed?Any stock market order can be amended as long as it is not in the process of being executed.
|
