In a previous post, the “market” order was discussed – if you haven’t done so, please read that post first.
If you want to buy an ETF (exchange traded fund) or a stock online,� it is important to learn about market orders and limit orders.� One of the potential problems with a “market” order is that you don’t have any control of the price.� If the ETF or stock you are trading is thinly traded, then you might get a poor price.
Limit order
A “limit order” takes care of this problem – basically you enter the trade like you would a “market” order but you also enter a “limit” which is the maximum price you are willing to accept.
Buy order limit example
If you want to buy a stock and the last trade was for $50, you might enter an order for 100 shares with a limit of $51.� This ensures that the highest price you will pay for the shares will be $51.� This doesn’t mean you are bidding $51 – the order is still considered a ‘market’ order with a limit so you will get the current price which will hopefully be less than $51.
Sell order limit example
If you want to sell an ETF and the last trade was for $60, you might enter an order for 50 shares with a limit of $59.� The sell limit is the opposite of the buy limit – you are instructing the brokerage to get the best price possible for the shares but don’t accept a price below $59.
No guarantee order will be filled
If you enter a buy “market” order then it is very likely that the order will get filled as long as there is someone else selling the same shares at that time.� If you use a limit – then it is possible the order will never get filled.
Photo by Noodlz55
