In this article, you will learn what does limit order mean in stocks. Many factors can affect trade executions. In addition to using different order types, traders can specify other conditions that affect an order's time in effect, volume or price constraints. Before placing your trade, become familiar with the various ways you can control your order; that way, you will be much more likely to receive the outcome you are seeking.
What Does Limit Order Mean in Stocks?
A limit order is an order to buy or sell a stock with a restriction on the maximum price to be paid or the minimum price to be received (the "limit price"). If the order is filled, it will only be at the specified limit price or better. However, there is no assurance of execution. A limit order may be appropriate when you think you can buy at a price lower than--or sell at a price higher than--the current quote.
Even if the stock reaches the specified limit price, your order may not be filled, because there may be orders ahead of yours that eliminate the availability of shares at the limit price. (Limit orders are generally executed on a first-come, first served basis.) Also note that with a limit order, the price at which the order is executed can be lower than the limit price, in the case of a buy order, or higher than the limit price, in the case of a sell order.
When Should You Choose A Limit Order?
Market orders are your best option if you simply want to buy or sell shares of stock right now. It makes sense to choose a limit order under certain specific circumstances:
- When you don't want to watch the market.
Placing a limit order can take the emotion out of trading. If you're worried about buying or selling a stock at the wrong time, you can set your limit order and go about your day without having to worry about timing the market perfectly.
- When you want to lock in a better price.
Limit orders are the best choice when you have a specific price in mind to buy or sell a stock. If you think stock is going to, you could place a limit order to buy at a lower price. Your order would only go through if the stock reaches the value you put or lower. If it doesn't, the order won't be processed.
- When you're trading a high number of shares.
Limit orders can be a good idea when you're trading a large number of shares because they help you avoid slippage, or the difference between the price you expect to pay for a stock and the price you actually pay. When you place a market order , it's difficult to predict how much slippage might occur. But with limit orders, you know exactly how much you'll pay for the number of shares specified in your order.
- When you want to trade low-volume stock.
Limit orders can also be helpful when you're trading stock that doesn't trade frequently. For example, if you want to buy shares of a small company that doesn't have a lot of volume, it may take some time to fill your order using a market order. In this case, limit orders can help you get the price you want without having to wait too long for your order to go through.
Bottom Line
Getting the right price in the stock market can be a challenge. That's because stock values fluctuate constantly, rising or falling from one second or one minute to the next. Using a limit order helps ensure you can buy or sell shares of stock at the price you want. This article is about what does limit order mean in stocks.
