What Is a 'Limit Order' in the Stock Market?

Over the last year, millions of new investors entered the stock market, and they are learning various strategies to trade equities.

One of the best mechanisms to employ is the limit order. While a market order is great for active traders, a limit order can ensure you reach your targets and secure your profits.

How It Works

You select a price you want to buy in your chosen stock. Once that stock reaches your desired price, the order limit executes an order at that given price or lower.

Remember, your limit order will only go through once the price reaches the limit price. If the stock never hits that level, the order will not be completed. Simply put, your trade is not guaranteed to be done.

Advantages & Disadvantages

Limit orders can ensure you keep your costs under control and you do not stray from your strategy. However, you might miss out on opportunities if there is a lot of volatility in the market and a sudden surge (the latest hype in AMC is a good example of this).

Conclusion

As a final note of caution: When you execute a trade, it is important to choose the "limit order" function rather than a "market order."

The market order, which buys or sells a stock at the most recent price, is generally the default setting on many self-investing brokerage applications. 


You do not want to hurt your strategy by having it set on the market order function!