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Limit Order Definition What Does Limit Order Mean

what is limit order

Limit orders are used when the trader wishes to control price rather than certainty of execution. The stop price and the limit price for a stop-limit order do not have to be the same price. For example, a sell stop limit order with a stop price of $3.00 may have a limit price of $2.50. Such an order would become an active limit order if market prices reach $3.00, however the order can only be executed at a price of $2.50 or better. You might then decide to sell when the Apple share price reaches $210. In this case you would place a limit close order and sell when the stock reaches your target price, which would enable you to realise your profit. For example, if BNB is trading at $600 and you place a sell stop-limit order with the stop price at $590.

what is limit order

A sell-stop price is always below the current market price. For example, if an investor holds a stock currently valued at $50 and is worried that the value may drop, he/she can place a sell-stop order at $40. If the share price drops to $40, the broker sells the stock at the next available price. This can limit the investor’s losses or lock in some of the investor’s profits . A stop order, on the other hand, is used to limit losses. Conversely, someone looking to buy the same stock may be waiting for the right opportunity but may want to place a stop order to buy at $58.

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Some investors use limit orders based on the belief that a stock’s price will reach a more desirable level in the future. MEOW is currently trading at $10 per share, but you want to receive at least $12 per share. The market price of XYZ begins to rise and touches 68.42, which is your trigger price. The biggest advantage of a market order is that your broker can execute it quickly because you’re telling the broker to take the best price available at that moment. If you’re buying a stock, a market order will execute at whatever price the seller is asking.

All of the above order types are usually available in modern electronic markets, but order priority rules encourage simple market and limit orders. Market orders receive highest priority, followed by limit orders. If a limit order has priority, it is the next trade executed at the limit price.

Limit Order

The use of stop orders is much more frequent for stocks and futures that trade on an exchange than those that trade in the over-the-counter market. Combined with price instructions, this gives market on close , market on open , limit on close , and limit on open . For example, a market-on-open order is guaranteed to get the open price, whatever that may be. A buy limit-on-open order is filled if the open what is limit order price is lower, not filled if the open price is higher, and may or may not be filled if the open price is the same. Most markets have single-price auctions at the beginning (“open”) and the end (“close”) of regular trading. Some markets may also have before-lunch and after-lunch orders. An order may be specified on the close or on the open, then it is entered in an auction but has no effect otherwise.

Both types of stop orders instruct a broker to sell a stock if your loss on the stock reaches a certain value. Investors use limit orders to buy or sell a stock at a preferred price or better, and they use stop orders to cap their potential losses on a trade. If a stock reaches the limit price at any time when a GTC limit order is active, then the broker executes the trade by either buying or selling the stock at the limit price or better. A stop-limit order combines the features of a stop order and a limit order. Once the stop price is reached, it will automatically trigger a limit order. The order will then execute if the market price matches the limit price or better. If you don’t have time to monitor your portfolio closely, you can consider using stop-limit orders to limit the losses you can incur on a trade.