There are several different stock orders you can place to buy or sell shares of stock. Each one has a different component that makes it unique, and the four types of orders are market orders, limit orders, trailing stop orders, and stop loss orders. This article will cover limit orders and explain how they work.
Limit orders are stock orders that allow you to buy or sell shares of stock at a pre-set designated price OR better.
So let's say we want to buy Microsoft stock, which is currently trading at at a last of $30.27 per share, but we only want to pay $30.00 or less for our shares. When we place the limit order and fill out the trade ticket, we basically say, "hey, I know Microsoft is trading above $30 per share right now, but if the price comes down to $30 or lower, automatically buy me in please".
What then happens is your order goes into a electronic system that will automatically buy the shares you desire at $30 or less per share.
Other Notes (Expiration, Cost, Etc.)
Some other points to note about buying stock with limit orders:
- You can have the order set up to expire at the end of the day, end of the week, end of the month, or never, it doesn't matter.
- You do not need to be present when the order takes place.
- Limit orders also cost the same price to place as a market order (Note: Other order types may depend on your stock broker.)
- Some professional traders recommend ONLY using limit orders to make your trades because it guarantees you are getting what you ask for.