What is a Limit Order?

A limit order allows you to buy a stock (or sell) at a given price or better. This order can benefit you in many different ways.

It allows you to get filled at the price you want. This is different than a market order which fills you no matter what price the stock is trading at. With a market order, if the stock has a big gap then the price that you wanted to buy a stock at and the price that you get filled could be different.

A limit order takes care of this problem by you setting a limit of the price you want to buy or sell it at. They can also be used to buy a stock on a pullback. For instance if a stock is trading at $50 and you open the order with a limit at $48 you will not buy the stock unless it pulls back and goes to $48 or lower.

It can be helpful if you have a certain price that you want it to go to before you enter the trade. Without this order you would have to sit by your computer and wait until it hits it.

Advantages and Disadvantages of This Order

The advantage is simply that it lets you get into the stock at the price you want without you having to sit down and wait for the stock to get to that price. The disadvantage is that you may miss a big move by being picky on when you get in.

If you find a stock that is trading at $50 and is going up you can always set a limit order at $48, which would give you a better price for the stock. But if the stock keeps going up and doesn’t come down to your limit order you would miss the big move because you were trying to get into the trade at a lower price.

In many situations a simple market order would work better because it tells your broker to just get into the trade at the next available price.

More Stock Market Orders