What Is A Limit Order & Market Order

Master the Market: Understanding Limit Orders in Stock Trading

It is a type of order to buy or sell a stock at a specified price or better. This means that if you place a buy-limit order, you are willing to purchase the stock at your specified price or lower. On the other hand, if you place a sell limit order, you are willing to sell your stock at your specified price or higher.

The advantage of using a limit order is that it gives you more control over the price at which your trade is executed. For example, if you want to purchase a stock, but you don’t want to pay more than a certain price, you can place a buy-limit order at that price. This way, you ensure that you won’t pay more than you are willing to for the stock.

It’s important to note that a limit order is not guaranteed to be executed. It can only be filled if the stock’s market price reaches the specified limit price. If the market price never reaches the limit price, the order will remain unfilled.

Example of a Limit Order

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

In this scenario, you want to purchase 100 shares of a stock with a target price range of 109 to 111 for the first lot, and 99 to 101 for the second lot, with a stop at 81.00.

To do this, you would place a limit order to buy 100 shares at a limit price of 111 or better. In the order type, you would select “Limit.” This means you will not pay more than 111 for the stock and may pay less if the price drops below that level.

By choosing this type of transaction, you have ensured that you won’t pay more than your target price of 111. In contrast, a market order would result in you paying the current market price for the stock, regardless of whether it’s higher or lower than your target price

Understanding Market Orders: The Basics

A market order is an order to buy or sell a stock at the best available price. Unlike limit orders, market orders do not specify a specific price at which to buy or sell a stock. Instead, a market order is filled immediately at the current market price, regardless of whether it is higher or lower than the desired price. Market orders are used when an investor wants to buy or sell a stock as quickly as possible and is willing to accept the current market price. Market orders are generally filled within a few seconds, but the price at which they are filled may be significantly different from the desired price, especially in fast-moving or volatile markets.

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 aim to always get the best possible price for our investments. To achieve this, we avoid placing market orders and instead use limit orders. By setting a limit order, you can ensure that you won’t pay more than your desired price for a stock or ETF. For example, if you want to purchase shares of IBB in the range of 109 to 111, you can put in an order to buy 100 shares at a limit of 111 or better. This means that you won’t pay more than 111, but could pay less if the stock drops below that price. By using limit orders, you maintain control over the price you are willing to pay for your investments and increase the chances of securing a good deal.

Stop limit order

A stop limit order is a type of order that combines the features of a stop order with those of a limit order. A stop limit order triggers a limit order to buy or sell a stock when the stock’s price reaches a specified stop price.

The main difference between a stop order and a stop limit order is that a stop order becomes a market order when the stop price is reached, whereas a stop limit order becomes a limit order. This means that a stop limit order guarantees the price at which the order will be executed, but it does not guarantee that the order will be filled. The idea behind a stop-limit order is to limit potential losses by setting a maximum price for a stock if it starts to move in an undesirable direction

End of Day Stop?

An end-of-day stop is akin to a mental stop, as you wait for the stock to close at or below a specified price before entering any trade in your brokerage account. In the example of IBB, the stop is set at 81.00. The stock must close at 81.00 or lower for the stop to be triggered, at which point you can enter a limit order to sell IBB at 81.00 or better. If you’re in a rush to exit the position, you could also consider entering a GTC limit sell order to sell at 80.50 or better. It’s worth noting, however, that many stocks tend to trend upward, allowing you to close the position at a better price than the stop price.

Summary

End-of-day stop is triggered by stock close at or below the suggested stop price
Enter GTC limit sell order at or close to the suggested stop price
- Example: close IBB at 81 or better
In case of a stock gap down and close below stop, enter GTC limit sell order at the best available price
- Example: If IBB gaps down to 75.00, try to get out at 75 or better
Interim update with additional instructions sent out in rare cases of the gap down and close well below stop.

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.