What is a limit order?
A limit order is a method used in the stock market for buying or selling a security. With this type of order, you set a specific price or a better one. For instance, if you're selling, the order will only be activated when the price reaches the limit you've set or goes even higher. On the flip side, when you're buying, the order gets going when the price hits your limit or goes lower than that.
This approach gives traders like you more say in how you want to execute a trade compared to worrying about market orders, especially during times of price swings. Instead of going with the flow of the market, you get to decide the price you're comfortable with using a limit order. Market orders, on the other hand, just follow the current market price.
A neat thing about limit orders is that you can adjust them until they get executed. This flexibility means you can fine-tune your approach as the situation changes. So, remember, a limit order is a handy tool in your trading arsenal that helps you take charge of your trades by setting your preferred prices.
Limit Order vs. Market Order
A market order is a direction to buy or sell security instantly at the best available price. For example, if the present market price of a stock is ₹50, a market order will buy or sell the stock at ₹50 or close to it. A market order has a high probability of being fulfilled, but it does not guarantee the exact price or quantity. Market orders are suitable for liquid securities that have a stable price and a large trading volume.
A limit order is a direction to buy or sell a security only at a specific price or better. For example, if the current market price of a stock is ₹50, a limit order can be placed to buy the stock at ₹45 or lower or to sell the stock at ₹55 or higher. A limit order gives more control over the price, but it does not guarantee that the order will be executed. Limit orders are suitable for illiquid securities that have a volatile price and a low trading volume