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What is limit order in stock trading?

Posted by : Premraj | Posted on : Wednesday, December 6, 2017

limit order in stock trading

A limit order in stock trading is a direction given to the broker to buy or sell a security at a specified price. The order will be executed at the limit price. It will not buy or sold below or above the limit price. The limit order is required to protect the interests of the investor. For example, the investor purchases the security at price x. There will be profit by selling the security at a price above x value. Hence, the limit order will ensure that the investor will book profit without fail.

Trading strategy

Various kinds of trading strategies are applied by the trader to book profit in the security market. There are investors who plan for long-term as well as short-term profits. If you are a beginner, you should be aware of the limit order trading so that you can make the most of your investment.

If you apply for limit order, you will not buy security at a high price. And you will not sell at a low price. The limit order will guarantee the price at which it should be sold or bought. In most of the cases, the limit order is treated as take-profit order. You will be able to buy or sell a financial product at specified price or at a better value.

The limit order is not a market order. If the order is let open, it will not be executed if the price selected by the investor will not meet during the order open period. The trader/investor can take sufficient time to open the time and it can be closed at any time by the investor.

The investor will not miss an opportunity to buy or sell a security at a stipulated price by using the limit order. The limit order is also called as ‘buy limit order or sell limit’ order as per the direction of the position. On the other hand, the stop loss order is opposite of the limit order. By applying for the stop loss order, you can carry out a new transaction. However, the transaction will not take place at a price lower than the targeted price.

Benefits of limit orders

As per the limit order definition, you can add specific conditions to the order. The order will be executed when it meets the condition. It is possible to execute the order immediately or it can be cancelled. This kind of instruction is called FOK (fill or kill) order. You can also specify to sell or buy all the specified number of shares. You can avoid partial buy or sale of shares.

You can also apply ‘if/then’ clause while executing the order. If the first order is executed, you will ensure that the second order will become live. Thus, you can exercise great control on the buy/sale of securities. Day traders will also be greatly benefited by the application of the limit order. As the timing is crucial, the order should be placed at an appropriate time.

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