Market and Limit Orders

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Market and Limit Orders

Investors can trade stocks through a broker using several methods, some of which offer them more control or the opportunity to juice their returns—with added risk, of course.

Things To Know

  • Market orders trade at the best price one can get.
  • Limit orders set a maximum or minimum price for a trade.

Placing an order to buy or sell shares of a company is relatively straightforward. There are various methods you can use, however, if you want to execute a trade at a specific price.

How market orders work

A market order is the most straightforward method of placing a trade. A market order tells the broker to buy or sell at the best price he or she can get in the market, and the trades are usually executed immediately. If you are using a long-term investing philosophy, fretting over a few pennies here and there doesn’t make sense, and a market order is best in most cases.

How limit orders work

A limit order means you can set the maximum price you are willing to pay for a stock, or a minimum price you’d be willing to sell a stock for. If the stock is trading anywhere below your maximum purchase price, or above the minimum selling price, the trade will be executed. However, because there are limitations when a limit order is placed, the trade might not be executed immediately. Also, some brokers charge extra when a limit order is requested.