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What is a Limit Order? When and how to use it

what is limit order

A buy limit order tells your broker to purchase shares once a stock falls below a certain price—the so-called limit price. With a sell limit order, a broker only sells your shares once the stock rises above a set limit price. If you set the stop price at $90 and the limit price at $90.50, the order will activate if the stock trades at $90 or worse. However, a limit order will be filled only if the limit price you selected is available in the market. The stop price and the limit price can be the same in this order scenario. The PM instructs his traders to buy 10,000 shares of Tesla should the price fall below $650, good ‘til canceled. The trader then places an order to buy 10,000 shares with a $650 limit.

what is limit order

For large companies that are highly liquid , the difference between buyers’ bid price and sellers’ ask price — called the bid-ask spread — is usually just a penny or two. Unless you’re buying huge numbers of shares, that difference doesn’t matter. This can help protect you from paying too much for a stock or selling for less than you wanted. A stop order is an order to buy or sell a stock at the market price once the stock has traded at or through a specified price (the «stop price»). If the stock reaches the stop price, the order becomes a market order and is filled at the next available market price.

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Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Volatility profiles based on trailing-three-year calculations of the standard deviation of service what is limit order investment returns. To better understand limit orders, here are a few examples. If MEOW drops from $10 to $8 or lower, and there are shares available, your order should fill at $8 or lower.

what is limit order

It offers you price protection—you set the minimum sale price or maximum purchase price. A single unit of ownership in a mutual fund or an ETF (exchange-traded fund) or, in the case of stocks, a corporation. Traders may not be able to quickly match buyers and sellers to execute your order. A conditional order is any order other than a limit order which is executed only when a specific condition is satisfied. However, a good til’ canceled limit order carries over into the next trading session until it expires, executes, or you decide to cancel the order. The investor instructs the broker to cancel the limit order.

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If the stock price for FHS increases to meet your limit price at $36 or continues to rise above $36, your sell limit order will execute. If the price of the FHS stock does not rise to meet your limit price, your order will not get filled. The photo example below shows the difference between where to place a buy limit order and where to place a sell limit order. A buy-stop order is typically used to limit a loss on a short sale.