A short description of what a "Buy Limit Order" is would be is: an order you can use to send in a request to buy shares of your selected stock, at a "limit" price (equal to or better) which you input on the order screen before sending it in to the market. Note: I have seen notices on Broker websites that state that some stocks are not eligible for "Limit" orders. When using a "Buy Market Order", you place an order to buy X number of shares of stock at the next available price upon your order entry. If you enter a "Buy Market Order" on a stock with low trading volume, or even just during a low trading volume period, your order could get filled much higher than you expected.
A solution would be to enter a "Buy Limit Order" for X number of shares at a limit of $10.00. If you are not concerned with entering where the stock is currently trading or you find that most of your picks do indeed move higher once you find them, use a limit price closer to the current trading price. A final tip is that if you are entering an order to buy a stock based on a newsletter or email recommendation that many other people may be entering around the same time, ALWAYS use a "Buy Limit Order". Also remember that using any type of limit order may result in your order not getting filled at all.
There are several benefits to utilizing both stop and limit orders, and these tools can be a valuable hedge against risk. As with most things in the world of investing, there are some drawbacks to using both a stop and a limit order, and these types of orders may not be suitable for every security or investment strategy. If your research has indicated that a security is set to rise in price, and you would like to initiate a position hoping to capitalize on its upward momentum, you can place a buy limit order with your brokerage.
You will need to determine the highest price you are willing to pay for the security if the order is executed, and this price is referred to as the stop limit price. As the rules concerning the activation of the trade vary according to what exchange the stock is traded on, it is important to determine whether the order will be activated either by the quote of the asset at the activation price, or by a trade at the activation price. In general, the limit price that you enter on a buy limit order should be placed higher than the activation price. For example, you would like to purchase a security that your research has indicated has upside potential that is currently trading at $100 per-share, and you set your activation and limit price for $101 a share. By placing your limit order higher, say $102, then you are increasing the possibility that your order will be executed in a fast rising market. When reviewing a buy limit order example, it is important to keep in mind that these types or orders carry the risk of not being executed due to the possibility that the security may never reach or surpass the specified limit price. This order type has no guarantee that your order will be filled due to the fact that the price may move above the limit price you entered.
Using a "Buy Limit Order" in this case would put a limit on the price your order would be executed at, thus avoiding an adverse fill. If the price dropped to $10.00, your order would be executed (as long as there were buyers at that price level). One of the downfalls of setting a limit price below the current trading price is that the stock price may not drop, and you could potentially miss out on a move higher. By reviewing a buy limit order example, you can see how this investment tool can help you realize greater profits in your investment portfolio.
If your trading strategy calls for momentum investing, a buy limit order could help you realize gains while mitigating risk. With this but limit order example, an investor can purchase a stock that is rising in price with the hopes that it continues to rise and produce profits.
You will place your order for an amount that is higher than the stock’s current price.
If a security is listed on the NASDAQ, the order will be executed when the Ask price reaches or rises above the activation price.
When you set the limit price higher than the activation price, it prevents the stock from trading through your limit price when the order is activated. If the price of the security rises too rapidly, once your order is activated and routed to the market as a limit order to buy at $101, there is the possibility that the price could have already exceeded your limit price, and your limit order will not be executed.
Your limit price will depend on the maximum price you are willing to pay for a specified security. In markets that are particularly fast moving and volatile, it may be impossible to execute your order at your limit price. But, if you thought the current price was too high, and were willing to buy at a lower price, then that's what you should stick with. If you are using the lower price limit order to potentially help get a better entry price, than do it.
A buy stop order indicates that you would like to buy a security once the price has risen to a specified price level, referred to as the activation price. When your order is activated, it will become a limit order to purchase the specified security at your limit price. There is the risk that your order will not be executed in a market that is rising if the limit price and the activation price are the same. I would hope that if someone entered an order that was not eligible, that it would not be accepted.
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