What Is a Limit Order?
A limit order is a type of order used to buy or sell a security at a specific price or a better one.
It gives traders more control over the price at which they execute their trades.
Limit Order Explained | Source: Investopedia
Understanding Buy and Sell Limit
When placing a buy limit order, it will only be executed if the security’s price reaches the limit price or goes below it.
On the other hand, the order will be executed for sell limit orders when the limit price is reached or exceeds it.
This feature enables traders to specify the price range they are willing to trade.
Managing Price and Execution
With a limit order, investors can ensure that they pay a specific price or less when buying a security, or receive a specific price or more when selling a security.
However, it’s important to note that while the price is guaranteed, the execution of the order is not.
If the security’s price does not meet the order qualifications, the order will not be filled, potentially causing the investor to miss out on the trading opportunity.
Managing Execution Price with Buy Limit Orders
When using a buy limit order, the investor is guaranteed to pay the buy limit order price or a better one, but there is no guarantee that the order will be filled.
Limit orders give traders greater control over the execution price, which can be particularly useful during periods of high volatility when they may be concerned about using a market order.