limit order
An order to buy or sell a security at a specified price or better, giving the investor control over the execution price rather than accepting the current market price.
Example
“She placed a limit order to buy at $48, unwilling to pay the current market price of $50.”
Memory Tip
LIMIT order = sets a LIMIT on your price. Won't execute unless your price is met.
Why It Matters
Limit orders help you maintain control over your investment costs and avoid buying or selling at prices you find unacceptable. This is particularly important when markets are volatile or when you are trading less frequently monitored securities where prices can swing dramatically between trades.
Common Misconception
Many people believe that placing a limit order guarantees their trade will execute at that price, but in reality the order may never fill if the market price never reaches the specified limit. Additionally, some assume limit orders are free, when in fact they may carry the same commissions as market orders depending on your broker.
In Practice
Suppose you own shares of a company trading at 50 dollars per share and you want to sell but only if the price reaches 55 dollars. You place a limit sell order at 55 dollars, and if the stock price rises to 55 dollars or higher during market hours, your shares will automatically sell at that price or better. However, if the stock never reaches 55 dollars, your order remains unfilled and you still own the shares.
Etymology
LIMIT (to restrict to a certain price) ORDER. An order with a LIMIT on the acceptable price.
Common Misspellings
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