How to Use Limit Orders

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When was the last time you went shopping and slapped the product on the counter and said, “charge me whatever!”  You’ve never done that and neither have I.  I don’t envision either of the two of us doing that any time in the foreseeable future either.  When buying a stock you must set your stock limit price via a limit order or you could be paying “whatever.”

The diligent way to purchase a stock is by using a limit order.  A limit order is exactly what it sounds like; you set the limit of what you’re willing to pay for a stock.  If you do not use limit orders you risk paying any price for a stock.  As an investor you want to get the best bargain for the company you’re investing in so you have to set a limit to sway the odds in your favor.  I know you would barter with a real estate agent to get the best possible price for a house so negotiating with the stock market should be done too.  Believe it or not, timing is everything in investing and using limit orders enables you to embrace this.

How do you place limit orders?  When you are placing a stock order with your brokerage firm via telephone just simply tell your broker the limit you are willing to pay for a stock.  If you are wanting to buy 100 shares of Disney then you’d say, “I want to buy to open 100 shares of Disney at a limit of $100.”  You are opening a position to go long a stock so that is why you say, “buy to open.”  When closing a position you are “selling to close” your position.

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When placing a limit order online, just click limit and set your price.

In this order entry you would be buying 100 shares of Disney, stock ticker DIS, at a limit of $60.00.  You are telling Mr. Market that $60.00 is the most you are willing to pay per share.  If the stock price is $60.00 or lower than your brokerage firm will buy the stock for you.

You can take your limit order one step further and even limit your time frame.  The only time frames you really need to know are Day, GTC and GTD.  Day is self-explanatory: you are sending your order in and if your limit is hit by the end of the day then your order will be placed.  GTC stands for “good till cancelled” and the order will stand until you cancel it.  GTD is an acronym for good till day.  After selecting this you will select a day when your order will be cancelled.

If you do not use limit orders then you would be placing a market order.  With a market order you are telling your brokerage firm that you don’t care what price you pay for the stock.  Disney could be priced at $60.00 or $67.00 and your brokerage would still buy the stock for you if a market order was placed.  This is not the approach you want to take when investing or buying merchandise online. You always want to get the best deal for anything you buy, especially stocks, so always set your limits.

It is crucial that you use limit orders when placing stock orders.  This will guarantee you get the price you desire for an equity that you want to invest in.  This will further increase your return on investment and help you conquer investing.

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