What Is A Limit Order & Market Order

What Is A Limit Order

 

What is a limit order

A limit order is an order to buy or sell a stock at a specific price or better.  A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.  A limit order is not guaranteed to execute.  A limit order can only be filled if the stock’s market price reaches the limit price.  While limit orders do not guarantee execution, they help ensure that an investor does not pay more than a pre-determined price for a stock. Full Story

Let’s using an example

Purchase one lot in the 109 to 111 ranges, purchase the second lot in the 99 to 101 ranges and place a stop at 81.00

The first part of the order is to purchase shares in the 109 to 111 ranges.  This is where you need to determine an entry point. So let’s say you choose 111 to make it easier.

You would enter the order as follows:

Place an order to buy 100 shares at a limit of 111 or better. Under order type you would select “limit”. This means you will not pay more than 111 and you could pay less if the stock drops below that price. So in the case of IBB, the most you would pay for the stock is 111.   However, if you place a market order, you would pay whatever price the stock is trading at.

What’s a market order

A market order is a request by an investor – usually made through a broker or brokerage service – to buy or sell a security at the best available price in the current market. It is widely considered the fastest and most reliable way to enter or exit a trade and provides the most likely method of getting in or out of a trade quickly. For many large-cap liquid stocks, market orders fill nearly instantaneously.

Any time a trader seeks to execute a market order, this means the trader is willing to buy at the asking price or sell at the bid price. Thus, the person executing a market order is immediately giving up the bid-ask spread. Full Story

At The Tactical Investor, we have never placed a market order and the reason is simple; our goal is to get into the stock at the best possible price best on our risk to reward models. We are looking to get into the stock at a discount.  If you place a market order IBB, and the stock suddenly jumped from 111 to 120, you could end up paying as much as 120, as you are basically instructing the system to purchase the ETF at the current price, regardless of what it is. With a limit order, you control the price you are willing to pay for a given stock or ETF.

Stop limit order

Stop-limit orders are a conditional trade that combines the features of a stop loss with those of a limit order to mitigate risk.

Stop-limit orders enable traders to have precise control over when the order should be filled, but it’s not guaranteed to be executed.

How Stop-Limit Orders Work

A stop-limit order requires the setting of two price points.

Stop: The start of the specified target price for the trade.

Limit: The outside of the price target for the trade.  Full Story

So for example, if you place an order to sell IBB at 81.00 but under order type, you placed “stop-limit” The order would only be triggered once IBB traded to 81.00, then it would become a limit order and the system would try to close the position out at 81.00 or better.

However, as we use end of day stops, you would not need to place a stop-limit order

What is an “end of day stop”?

It’s like a mental stop as you don’t enter any trade in your brokerage account until the stock closes at or below the stated stop price. In the case of IBB, the stop is 81.00.  IBB would have to close at 81.00 or below for the stop to be triggered. Then the next day you would enter a limit order (under order type select limit) to sell IBB at 81.00.

Duration of an order

One usually places a good to cancel (GTC), if that is not available then select the longest available time period provided.  If we don’t get a fill within a certain period of time we will cancel this play and replace it with another play. In that event, you would simply log into your account and cancel this order.

How To Buy And Sell Shares

Some investors are greenhorns; investing is a whole new field for them. If you fall into this category then this video should help you understand the process.

Virtual Stock Trading Accounts

If you want to paper trade you can use one of the following sources listed below.

Investopedia Virtual Stock Trading Account

Virtual Stock Account 2

 

Other Articles Of Interest

Tactical Investor Stock & Option Selection Process

Important Info To Read Before Getting into Options 

How to Purchase Options on Stocks we have not issued any plays on 

How To Sell Puts

Brainwashing Institutions and the manipulative media