One of the most basic techniques that any stock trader should learn is how to use a limit order. This stock trading tutorial will examine how limit orders work as well as when to use them. Limit orders may be the single most common type of order for stock trading.
Limit orders let you specify at what price you are willing to purchase shares of stock. You get to set the maximum amount that you will spend on a certain stock and if the price is equal to or less than your set price you will purchase. Limit orders guarantee price but not execution. What that means is if the stock you are trying to buy never drops down to your limit price, you will not buy that stock.
The two most common uses of the limit order are when buying a stock, or when selling a stock already in your portfolio. If you are buying a stock that happens to be selling for $23.45 you could place a limit order to buy that stock for $23.20. You would only be awarded the shares if the stock price drops to that level. Selling stocks with this type of order works much the same way, just in the opposite direction. If you want to sell a stock for a price higher than it is currently trading, this is the perfect order type for that. Again, after you place the order you will only sell your stock if the price raises to the level you have specified.
Limit orders are the staple of both investors and day traders. Being in complete control of exactly what price you will purchase or sell a stock gives you greater command over your overall trading strategy. For more stock trading tutorials and tidbits of information on the stock market visit stocktradingtutorial.org