Limit order when buying / selling shares

Limit orderIf you want to avoid buying or selling stocks at a price that is higher or lower than intended, then you must place a market order, not a market order. By placing a limit order, you specify the price at which you will buy or sell shares. You can place either a limit order for a purchase or a limit order for a sale. Limit purchase orders can only be executed if the price of the shares you buy does not exceed the limit price. Limit orders for sale can be executed only in the case when the price of shares that you sell is not lower than the limit price. In other words, in either case, you set acceptable price parameters. Such an approach is impossible in the case of a market order.

 

The risk that you assume when placing a limit order is that your order may never be executed. For example, some “feverish” stocks are of most interest to you when they are sold for $ 10, so you decide to place a limit order for the purchase of these shares for $ 10.50.By the time you call your broker or enter an appropriate order into your system of buying and selling shares, the price may already exceed $ 10.50 and never fall to the level you indicated. As a result, your order will be unfulfilled. On the other hand, if the demand for these shares is so exorbitant that their price soars to $ 75, you will not be required to buy them at such a high price. Such a rapid rise in prices is likely to be short-lived, and the price will quickly fall to a reasonable level. Therefore, if you were forced to buy shares at $ 75, then you would have to sell them at a much lower price later and incur considerable losses.

 

Most firms charge large commissions for the execution of a limit order than for the execution of a market order. Thus, if you intend to place a limit order, understand first in the structures of fees and commissions.



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