What is a market or limit order?
Welcome to Professor Savings
We teach finance basics.
Hi I’m your host today Rayfil Wong today’s topic.
What is a limit order?
We are speaking in terms of buying stock so let’s review stock is a share ownership of a company to purchase you have set up an account with a broker.
Two terms to know when buying stock market order instructs your broker to buy you amount of stockyou want let’s say Unicorn Inc. makes plush toys you want to buy 10 shares at $100 each next day and floats between $105 per share and $100.
So this is volatile since I don’t know the exact buy price will be so consider a limit order.
A limit order is a specific instructions that I, as an investor, give to my broker describing how a specific trade is to be executed on my online brokerage when purchasing a stock the limit order will set maximum price to pay for a stock when selling a stock.
A limit order is the minimum price investor will to accept.
Let s give an example of a company which is trading at $100 per share
But I do not want to pay market price of $100.
So I sets a limit order to buy at $95 so I am letting my broker know that I am
not willing to pay more than $95 a share so once Unicorn Inc.
goes to $95 or less broker buys shares but if Unicorn does not drop to $95 or less
no shares are purchased I can.
Also use limit order to sell my shares.
let’s say i want to sell Unicorn Inc. at $105 per share but current price is at $95
can enter limit order to sell at $105 so my shares will sell at $105 or higher
other wise if it does not hit $105 I will have to keep the stock
limit order control the price to buy and sell a stock.
That’s it! This is not an easy lesson so I would advise to watch it a few times.
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