A limit order is an order in which a specific price is set to buy or sell a security. If the price point is hit and there is sufficient volume at that price point or better, your order will be filled. Limit orders may be placed as “Day” orders which are good for the day only, or as “GTC” orders, which are good until cancelled.
A limit buy order is conditional buy order that will only execute if the price of the stock reaches a target price (your set price) or better/less.
Example of a Limit Order
For example, if Apple (AAPL) is trading at $100 and I want to buy it at a lower price, then I would select a limit buy order with a target price of say $97. This means that once Apple shares decline to $97, my Limit Buy order is activated and automatically becomes a market order filling at $97 or lower.
Once I buy the AAPL stock at $97, I can then place a limit sell order to sell the stock at $105. That way, when the price of AAPL hits $105 or higher, my order will become a market order and I will sell my stock at $105 or higher.
The use of Limit orders is most applicable to low volume or high volatility stocks. It is also important to note that some brokerage firms charge more for limit orders.
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