Buying good stocks is important thing but buying stocks at right price is also essential. While placing orders for buying or selling one come across market order and limit order. Here we’re trying to understand what a “limit order” is? And some important facts about limit order.
Meaning and Explanation
Limit order is a type of order where one wishes to buy or sell scrip (stock/ index) at certain price. In limit order price can be assured but execution isn’t.
While placing limit order one needs to place specific price for buying or selling. In case of buying your order will only get executed below or at the price you’ve specified (Limit) while placing likewise, while selling your order will get executed above or at the price you’ve specified.
Let’s take a limit order example, Participant A wants to buy 100 shares of XYZ company. Stock is trading at Rs. 90. Trader a thinks stock price will drag a bit from current level and bounce back again. If he puts limit order of 87 then when stock will come to 87 then only his order will get executed.
Difference between Limit Order vs Market Order
Market order is which gets executed at the best available current market price. Limit order will only get executed at specific price.
In market order participant will get/be able to sell desired quantity but price can shoot up or go down. Where as in limit order participant will get/be able to sell fewer shares but at desired price.
Risks of Limit Order
The biggest risk of limit orders is that there is no guarantee of execution of the order. While in limit order you get control over transaction price but may not get the desired quantity. Sometimes, if reaches to your limit price but there are pending orders before your order, your order may not get execute. This is since the exchange follow a price time priority while matching orders.
One needs to keep a thing in mind while placing limit orders. Brokerage and other transaction charges are applicable. To check broking charges refer SAMCO’s brokerage calculator.
Other Popular Order Types
- Market orders
- Stop Loss Limit Orders
- Stop Loss Market Orders
To place limit orders with India’s leading discount broker SAMCO, login to the SAMCO Trading Platforms.