Stock Trade Price Limit – What is the Difference Between a Market Order and a Limit Order?
Stock traders need to understand the different types of orders that can be placed with a stock broker so that they realize the possible consequences of the transactions entered into. Certain orders will give you better protection than others and this will determine how well you protect your assets when trading.
Market and limit orders are commonly used and differ in the following ways:
Market orders
A stock trader that places a market order is instructing their stock broker to buy or sell a stock at the current market price on their behalf, which is the standard procedure in which a stock broker will address stock trades unless you state that you require the trades to be handled differently.
It is almost guaranteed that your order will be executed if you use a market order, providing that there are buyers and sellers in the market willing to trade in your particular stock. Your buy orders will generally be filled at the asking price and your sell orders at the bid price.
Unfortunately, a disadvantage of placing a market order is that you have to pay the price at which the order is finally executed, and because the market is constantly moving at such a pace, the price of the final execution may not be what you had expected. Stock Trade Price Limit
Limit orders
When you place a limit order, you are specifying the price at which you intend to buy or sell a specific stock. With this approach you avoid paying a higher price when buying and lower price when selling a stock.
When you place a buy limit order, the order will only be executed when there is a seller that is prepared to sell that particular stock to you at the limit order price or lower. When you place a sell limit order, the order can only be executed when there is a buyer that is prepared to pay the limit order price or higher.
The unfortunate problem with limit orders is that you may not be able to buy or sell the stock because there may not be a willing buyer or seller at the stipulated price of the order.
When you approach your broker with the intention to buy or sell stock, be sure that you are well aware of the consequences of using a market or limit order and how each one will affect the outcome of your trade. Ask your stock broker for their advice on your choice of order and use their expertise to govern your final decision. Stock Trade Price Limit
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